Business Cycle during Structural Change: Arthur Lewis' Theory from a Neoclassical Perspective

Kjetil Storesletten, Bo Zhao and Fabrizio Zilibotti

No 26181, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We document that the nature of business cycles evolves over the process of development and structural change. In countries with large declining agricultural sectors, aggregate employment is uncorrelated with GDP. During booms, employment in agriculture declines while labor productivity increases in agriculture more than in other sectors. We construct a unified theory of business cycles and structural change consistent with the stylized facts. The focal point of the theory is the simultaneous decline and modernization of agriculture. As capital accumulates, agriculture becomes increasingly capital intensive as modern agriculture crowds out traditional agriculture. Structural change accelerates in booms and slows down in recessions. We estimate the model and show that it accounts well for both the structural transformation and the business cycle fluctuations of China.

JEL-codes: E32 O11 O13 O14 O41 O53 Q11 (search for similar items in EconPapers)
Date: 2019-08
New Economics Papers: this item is included in nep-dge, nep-mac and nep-tid
Note: EFG
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Citations: View citations in EconPapers (18)

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Related works:
Working Paper: Business Cycle during Structural Change: Arthur Lewis' Theory from a Neoclassical Perspective (2020)
Working Paper: Business Cycle during Structural Change: Arthur Lewis' Theory from a Neoclassical Perspective (2019)
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