Econometrica: Jan 2021, Volume 89, Issue 1

Structural Change with Long-run Income and Price Effects

https://doi.org/10.3982/ECTA16317
p. 311-374

Diego Comin, Danial Lashkari, Martí Mestieri

We present a new multi‐sector growth model that features nonhomothetic, constant elasticity of substitution preferences, and accommodates long‐run demand and supply drivers of structural change for an arbitrary number of sectors. The model is consistent with the decline in agriculture, the hump‐shaped evolution of manufacturing, and the rise of services over time. We estimate the demand system derived from the model using household‐level data from the United States and India, as well as historical aggregate‐level panel data for 39 countries during the postwar period. The estimated model parsimoniously accounts for the broad patterns of sectoral reallocation observed among rich, miracle, and developing economies. Our estimates support the presence of strong nonhomotheticity across time, income levels, and countries. We find that income effects account for the bulk of the within‐country evolution of sectoral reallocation.



Log In To View Full Content

Supplemental Material

Supplement to "Structural Change with Long-run Income and Price Effects"

This zip file contains the replication files for the manuscript.  It also contains an online appendix with additional material not found within the manuscript.

Read More View ZIP


Back