Sectoral Composition and Macroeconomic Dynamics

Resumo

We analyze the transitional dynamics of a model with heterogeneous consumption goods. In this model, convergence is driven by two di¤erent forces: the typical diminishing returns to capital and the sectoral change inducing the variation in relative prices. We show that this second force a¤ects the growth rate if the two consumption goods are not Edgeworth independent and if these two goods are pro- duced with technologies exhibiting di¤erent capital intensities. Because the afore- mentioned dynamic sectoral change arises only under heterogeneous consumption goods, the transitional dynamics of this model exhibits striking di¤erences with the growth model with a single consumption good. We also show that these di¤erences in the transitional dynamics can give raise to large discrepancies in the welfare cost of shocks between the economy with a unique consumption good and the economy with multiple consumption goods.