Can Traditional Theories of Structural Change Fit The Data?

Francisco J. Buera
Joseph Kaboski
Publication Type: 
Papers
Publication Article File: 
Journal Name: 
Journal of the European Economic Association
Journal Volume: 
7
Journal Number: 
2-3
Pages: 
469-477
Publication Year: 
2009

Two traditional explanations for structural changes are sector-biased technological progress and non-homothetic preferences. This paper integrates both into an otherwise standard growth model and quantitatively evaluates them vis-a-vis time series. The exercise identifies a set of puzzles for standard theories: (i) the model cannot account for the steep decline in manufacturing and rise in services in the later data; (ii) the standard model requires implausibly low elasticity of substitution across goods to match the consumption and output data; and (iii) the behavior of consumption and output shares differs significantly from that of employment shares. We argue that models that incorporate home production, sector-specific factor distortions, and differences across sectors in the accumulation of human capital are promising avenues to amend the standard models.

JEL Codes: 
O11, O14 , O41
Topic: 
Economic Modeling
Topic: 
Consumption
Topic: 
Growth