Capital-Labor Substitution, Structural Change and Growth

Francisco Alvarez-Cuadrado () and Ngo Long

No 1, Working Papers from Development and Policies Research Center (DEPOCEN), Vietnam

Abstract: There is a growing interest in multi-sector models that combine aggregate balanced growth, consistent with the well-known Kaldor facts, with systematic changes in the relative importance of each sector, consistent with the Kuznets facts. Although variations in the income elasticity of demand across goods played an important role in the initial attempts, recent models stress the role of supplyside factors in this process of structural change. Along these lines, Ngai and Pissarides (American Economic Review, 2008) focus in differential productivity growth across sectors while Acemoglu and Guerrieri (Journal of Political Economy, 2008) stress differences in factor proportions and capital deepening. We explore a general framework that encompasses, as special cases, these two supplyside mechanisms. Our model uncovers an additional driving force for structural change based on differences in the degree of capital-labor substitutability. When the flexibility to combine capital and labor varies across intermediate goods and the final sector is Cobb-Douglas, as the economy grows the fraction of capital (labor) allocated to the sector with high elasticity of substitution increases (decreases). We provide some casual evidence consistent with this new mechanism.

Keywords: Capital-labor substitution; balanced growth; structural change. (search for similar items in EconPapers)
JEL-codes: O30 O40 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2012
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Capital-labor substitution, structural change and growth (2017)
Working Paper: Capital-Labor Substitution, Structural Change and Growth (2016)
Working Paper: Capital-Labor Substitution, Structural Change and Growth (2015)
Working Paper: Capital-Labor Substitution, Structural Change and Growth (2011)
Working Paper: Capital-Labor Substitution, Structural Change and Growth (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:dpc:wpaper:0112

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