Structural Change with Long-run Income and Price Effects

Diego Comin, Danial Lashkari and Martí Mestieri

No 12458, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We present a new multi-sector growth model that features nonhomothetic, constant-elasticity-of-substitution preferences, and accommodates long-run demand and supply drivers of structural change for an arbitrary number of sectors. The model is consistent with the decline in agriculture, the hump-shaped evolution of manufacturing, and the rise of services over time. We estimate the demand system derived from the model using household-level data from the U.S. and India, as well as historical aggregate-level panel data for 39 countries during the postwar period. The estimated model parsimoniously accounts for the broad patterns of sectoral reallocation observed among rich, miracle and developing economies. Our estimates support the presence of strong nonhomotheticity across time, income levels, and countries. We ï¬ nd that income effects account for over 75% of the observed patterns of structural change.

Keywords: Nonhomothetic ces preferences; Implicitly additively separable preferences; Structural transformation (search for similar items in EconPapers)
JEL-codes: E2 O1 O4 O5 (search for similar items in EconPapers)
Date: 2017-11
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (11)

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Related works:
Journal Article: Structural Change With Long‐Run Income and Price Effects (2021)
Working Paper: Structural Change with Long-run Income and Price Effects (2015)
Working Paper: Structural Change with Long-run Income and Price Effects (2015)
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