Structural Change and the Kaldor Facts of Economic Growth

Reto Foellmi () and Josef Zweilmueller

No 342, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: The model presented in this paper reconciles two of the most important features of the long-run growth process: the massive changes in the structure of production and employment; and the Kaldor facts of economic growth. Structural change occurs because Engel-curves are non-linear. Each new good goes through Engel's consumption cycle, i.e. starts out as a luxury with a high income elasticity and ends up as a necessity with a low income elasticity. The coexistence of stagnating and expanding industries imply a changing sectoral composition and a continuous reallocation of labor across sectors. Nonetheless macroeconomic aggregates grow at a constant rate, and the real interest rate and the labor share are constant. Our model also addresses the two-way causality between economic growth and structural change. Complementarities between aggregate and sectoral growth may give rise to multiple equilibria providing a possible explanation for development failures

Keywords: Kaldor facts; Engel-curve; structural change; structural transformation; hierarchic preferences (search for similar items in EconPapers)
JEL-codes: O40 O11 L16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev and nep-pke
Date: 2006-12-03
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Related works:
Working Paper: Structural Change and the Kaldor Facts of Economic Growth (2002)
Working Paper: Structural Change and the Kaldor Facts of Economic Growth (2002)
Working Paper: Structural Change and the Kaldor Facts of Economic Growth
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Persistent link: http://EconPapers.repec.org/RePEc:red:sed006:342

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