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Supply Side Structural Change

Juan Cordoba ()

GE, Growth, Math methods from University Library of Munich, Germany

Abstract: The interest rate and the rate of economic growth are often regarded as roughly constant as economies grow. Moreover, the agricultural sector and 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. The model predicts that developed countries must experience a sudden slowdown in their growth rates once the backward sector fully disappears. Productivity, as measured by the Solow residuals, also must slow down. Cross-country evidence supports these predictions of the model

Keywords: Growth; Structural Change; Urbanization; Choice of Techniques; Productivity Slowdown (search for similar items in EconPapers)
JEL-codes: O14 O15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev
Date: 2002-11-21
Note: Type of Document - pdf; pages: 38 ; figures: included
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Journal Article: Supply Side Structural Change (2013) Downloads
Working Paper: Supply Side Structural Change (2002) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpge:0211002

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