Economic Geography and Structural Change

Clement Bohr, Marti Mestieri and Robert-Nicoud, Frédéric

No 19766, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: As countries develop, the relative importance of agriculture declines and economic activity becomes spatially concentrated. We develop a parsimonious model integrating structural change and regional disparities to jointly capture these phenomena. A key modeling innovation that ensures analytical tractability is the introduction of non-homothetic Cobb-Douglas preferences, which are characterized by constant unitary elasticity of substitution and non-constant income elasticity. As labor productivity increases over time, economic well-being rises, leading to a declining expenditure share on agricultural goods. Labor reallocates away from agriculture, and industry concentrates spatially, which further increases aggregate productivity: structural change and regional disparities are two mutually reinforcing outcomes and propagators of the growth process.

JEL-codes: D11 F11 O40 R10 (search for similar items in EconPapers)
Date: 2024-12
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