Working Paper: NBER ID: w24568
Authors: Berthold Herrendorf; Richard Rogerson; Kós Valentinyi
Abstract: Existing models of structural change typically assume that all of investment is produced in manufacturing. This assumption is strongly counterfactual: in the postwar US, the share of services value added in investment expenditure has been steadily growing and it now exceeds 0.5. We build a new model, which takes a unified approach to structural change in investment and consumption. Our unified approach leads to three new insights: technological change is endogenously investment specific; having constant TFP growth in all sectors is inconsistent with structural change and aggregate balanced growth occurring jointly; the sector with the slowest TFP growth absorbs all resources asymptotically. We also provide empirical support from the postwar US for the first and third insight.
Keywords: Structural Change; Investment; Consumption; Technological Change; General Equilibrium
JEL Codes: O11; O14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Investment sector TFP growth (O49) | Structural change (L16) |
| Relative growth rates of goods and services (E31) | Investment-specific technological change (O39) |
| Constant TFP growth across sectors (O49) | Inconsistency with GBGP exhibiting structural change (E32) |
| Sector with slowest TFP growth (O49) | Absorption of all resources (Q32) |
| Changes in value-added shares over time (D46) | Structural change within the investment sector (L16) |