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Endogenous Sector-Biased Technological Change and Industrial Policy

Berthold Herrendorf () and Akos Valentinyi ()

No 10869, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We build a model of structural transformation with endogenous sector-biased technological change. We show that if the return to specialisation is larger in the goods sector than in the service sector, then the equilibrium has the following properties: aggregate growth is balanced; structural transformation takes place from goods to services; the service sector receives more innovation but the goods sector has more productivity growth. We show that compared to the efficient allocation the laissez-faire equilibrium has too much labor in the goods sector. This suggests that optimal industrial policy should aim to increase the pace of structural transformation.

Keywords: endogenous sector-biased technological change; horizontal innovation; industrial policy; structural transformation (search for similar items in EconPapers)
JEL-codes: O11 O14 O31 O33 (search for similar items in EconPapers)
Date: 2015-10
New Economics Papers: this item is included in nep-gro, nep-ino and nep-tid
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