Working Paper: CEPR ID: DP15351
Authors: Francisco Buera; Joseph Kaboski; Mart Mestieri; Daniel O'Connor
Abstract: Standard dynamic models of structural transformation, without knife-edge and counterfactual parameter values, preclude balanced growth path (BGP) analysis. This paper develops a dynamic equilibrium concept for a more general class of models --- an alternative to a BGP, which we coin a Stable Transformation Path (STraP). The STraP characterizes the medium-term dynamics of the economy in a turnpike sense; it is the path toward which the economy (quickly) converges from an arbitrary initial capital stock. Calibrated simulations demonstrate that the relaxed parameter values that the STraP allows have important quantitative implications for structural transformation, investment, and growth. Indeed, analyzing the dynamics along the STraP, we show that the modern dynamic model of structural transformation makes progress over the Neoclassical growth model in matching key growth and capital accumulation patterns in cross-country data, including slow convergence.
Keywords: growth; investment; dynamics; nonbalanced growth
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| stable transformation path (strap) (D50) | medium-term economic dynamics (E66) |
| stable transformation path (strap) (D50) | capital accumulation and growth (E22) |
| structural transformation (L16) | economic growth (O49) |
| initial conditions (C62) | stable path (C62) |
| varying sectoral productivity growth rates (O49) | overall economic growth (O49) |
| stable transformation path (strap) (D50) | understanding dynamics of structural transformation (L16) |
| stable transformation path (strap) (D50) | addressing growth convergence puzzle (F62) |
| strap reflects standard neoclassical convergence (F11) | persistent nonbalanced patterns (C62) |
| different initial conditions (C62) | similar growth trajectories (O41) |