Business Cycle during Structural Change: Arthur Lewis' Theory from a Neoclassical Perspective

Kjetil Storesletten, Bo Zhao () and Fabrizio Zilibotti
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Fabrizio Zilibotti: Cowles Foundation, Yale University, https://economics.yale.edu/people/faculty/fabrizio-zilibotti

No 2191, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We document that the nature of business cycles evolves over the process of development and structural change. In countries with large declining agricultural sectors, aggregate employment is uncorrelated with GDP. During booms, employment in agriculture declines while labor productivity increases in agriculture more than in other sectors. We construct a unified theory of business cycles and structural change consistent with the stylized facts. The focal point of the theory is the simultaneous decline and modernization of agriculture. As capital accumulates, agriculture becomes increasingly capital intensive as modern agriculture crowds out traditional agriculture. Structural change accelerates in booms and slows down in recessions. We estimate the model and show that it accounts well for both the structural transformation and the business cycle fluctuations of China.

Keywords: Agriculture; Business Cycle; Capital Accumulation; China; Employment; Lewis; Modernization; Structural Change (search for similar items in EconPapers)
JEL-codes: E32 O11 O13 O14 O41 O47 O53 (search for similar items in EconPapers)
Pages: 72 pages
Date: 2019-08
New Economics Papers: this item is included in nep-cna, nep-dge, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Related works:
Working Paper: Business Cycle during Structural Change: Arthur Lewis' Theory from a Neoclassical Perspective (2020)
Working Paper: Business Cycle during Structural Change: Arthur Lewis' Theory from a Neoclassical Perspective (2019)
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