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An empirical investigation of the relationship between trade and structural change

Mariarosaria Comunale and Giulia Felice ()
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Giulia Felice: Politecnico di Milano

No 62, Bank of Lithuania Working Paper Series from Bank of Lithuania

Abstract: This paper investigates the role of international trade in the increase in the employment share of non-tradable sectors (services and construction). Borrowing insights from the vast theoretical literature on the determinants of structural change, we build an empirical model allowing to distinguish between long-run and short-run effects. We use this model to investigate the relative importance of the main traditional demand-side and supply-side channels of structural change, assessing, in this context, the role of trade variables. To this end, we use an unbalanced panel of countries for the period 1960-2011 from the EU-KLEMS and the GGDC 10-sector databases. Our preliminary results suggest that both Engelian income effects, i.e. the so-called demand-side drivers, and relative productivity, i.e. the supply-side channel, are relevant drivers of structural change. We show that the import and export shares are positively and negatively related, respectively, with the employment shifts to non-tradable sectors in the long run, in particular, for mature and transition economies. In the short run, a positive and significant relationship between the import share and structural shifts towards tradable sectors emerges.

Keywords: Structural change; International trade; ECM (search for similar items in EconPapers)
JEL-codes: F1 F4 O1 O4 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2019-06-20
New Economics Papers: this item is included in nep-int
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