Working Paper: NBER ID: w21595
Authors: Diego A. Comin; Danial Lashkari; Mart Mestieri
Abstract: 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 U.S. 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.
Keywords: Structural change; Nonhomothetic preferences; Income elasticity; Sectoral reallocation; Economic growth
JEL Codes: E20; O11; O40; O5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nonhomothetic CES preferences (D11) | sectoral reallocation (J69) |
| income effects (H31) | within-country sectoral reallocations (F16) |
| income effects (H31) | employment sectoral reallocation (J68) |
| income elasticities (D12) | consumption patterns (D10) |
| nonhomothetic CES preferences (D11) | heterogeneous income elasticities (D11) |
| demand system estimation (C51) | robustness of findings (C90) |
| relative prices variations (P22) | supply-side effects (E65) |