Structural Change in Investment and Consumption—A Unified Analysis

Capital Deepening and Non-balanced Economic Growth

Berthold Herrendorf, Richard Rogerson and Ákos Valentinyi

The Review of Economic Studies, 2021, vol. 88, issue 3, 1311-1346

Abstract: The structural-change literature typically assumes that investment is produced in manufacturing. We establish that this assumption is counterfactual: in the postwar U.S., the share of services value added in investment expenditure has been steadily growing. We develop a new model that features structural change in investment and consumption, characterize its equilibrium properties, and provide empirical support for it. We establish that modelling structural change in investment leads to three novel insights: constant TFP growth in all sectors is inconsistent with the existence of aggregate balanced growth with structural change; the sector with the slowest TFP growth absorbs all resources asymptotically; technical change is endogenously investment-biased.

Keywords: Aggregate balanced growth; Investment; Investment-biased technical change; Structural change; O11; O14 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:88:y:2021:i:3:p:1311-1346.

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