Supply Side Structural Change

Juan Cordoba

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: The interest rate and the rate of economic growth are often regarded as roughly constant as economies grow. Moreover, the share of agriculture in production and the share of rural population typically shrink. We show that an otherwise standard growth model that includes a backward and an advanced sector can account for these regularities. The mechanism works as follows: as the economy accumulates capital, labor flows from the backward sector to the advanced one. This migration prevents the usual diminishing marginal returns of capital. As a result, the interest rate and the growth rate of the economy remain constant during the transition to the steady state.

Date: 2013-01-01
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Related works:
Journal Article: Supply Side Structural Change (2013)
Working Paper: Supply Side Structural Change (2002)
Working Paper: Supply Side Structural Change (2002)
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