Working Paper: CEPR ID: DP3300
Authors: Reto Foellmi; Josef Zweimuller
Abstract: We present a model in which two of the most important features of the long-run growth process are reconciled: the massive changes in the structure of production and employment; and the Kaldor facts of economic growth. We assume that households expand their consumption along a hierarchy of needs and firms continuously introduce new products. In equilibrium industries with an expanding and those with a declining employment share co-exist, and each such industry goes (or has already gone) through a cycle of take-off, maturity, and stagnation. Nonetheless macroeconomic aggregates grow pari passu at a constant rate.
Keywords: Balanced Growth; Demand Externalities; Hierarchic Preferences; Innovation; Kaldor Facts; Multiple Equilibria; Structural Change
JEL Codes: D91; L16; O11; O31; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| income increase (D31) | structural changes in production and employment (L16) |
| income increase (D31) | shift in consumption from necessities to luxuries (D12) |
| innovations (O35) | productivity growth (O49) |
| productivity growth (O49) | sectoral dynamics (L16) |
| productivity growth (O49) | aggregate growth rates (E10) |
| steeper hierarchy of needs (I31) | quicker approach to saturation levels in consumption (D10) |
| quicker approach to saturation levels in consumption (D10) | shift in demand patterns (R22) |
| shift in demand patterns (R22) | structural change (L16) |
| industrial R&D (O32) | economic growth (O49) |
| economic growth (O49) | innovative activity (O35) |