Structural Change in Investment and Consumption: A Unified Approach

Berthold Herrendorf, Akos Valentinyi and Richard Rogerson
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Akos Valentinyi: University of Manchester

No 88, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: Existing models of structural change typically assume that all of investment is produced in the goods sector. We show that this assumption is strongly counterfactual: in the postwar US, the share of services value added in investment expenditure has been steadily growing and now exceeds that of goods value added. We build a new model, which takes a unified approach to structural change in investment and consumption and yields to three new insights. First, for empirically plausible parameter values technological change is endogenously investment specific. Second, constant TFP growth in all sectors is inconsistent with structural change happening along aggregate balanced growth path. Third, the sector with the slowest TFP growth absorbs all resources asymptotically.

Date: 2018
New Economics Papers: this item is included in nep-dge
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Working Paper: Structural Change in Investment and Consumption: A Unified Approach (2018)
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