Working Paper: NBER ID: w26181
Authors: Kjetil Storesletten; Bo Zhao; Fabrizio Zilibotti
Abstract: We document that the nature of business cycles evolves over the process of development and structural change. In countries with large declining agricultural sectors, aggregate employment is uncorrelated with GDP. During booms, employment in agriculture declines while labor productivity increases in agriculture more than in other sectors. We construct a unified theory of business cycles and structural change consistent with the stylized facts. The focal point of the theory is the simultaneous decline and modernization of agriculture. As capital accumulates, agriculture becomes increasingly capital intensive as modern agriculture crowds out traditional agriculture. Structural change accelerates in booms and slows down in recessions. We estimate the model and show that it accounts well for both the structural transformation and the business cycle fluctuations of China.
Keywords: business cycles; structural change; agriculture; development; China
JEL Codes: E32; O11; O13; O14; O41; O53; Q11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| agricultural sector size (Q12) | correlation of aggregate employment with GDP (E20) |
| economic booms (E32) | agricultural employment (J43) |
| economic booms (E32) | labor productivity in agriculture (J43) |
| downswings in agricultural employment (J43) | upswings in relative productivity of agriculture (Q11) |
| positive TFP shocks in non-agriculture (O49) | structural change (L16) |
| structural change (L16) | productivity in agriculture (Q11) |