Anatomizing the mechanics of structural change

Resumen

We identify the economic fundamentals governing the process of structural change in a non-parameterized growth model. These fundamentals are: the income elasticities of the consumption demand; the Allen-Uzawa elasticities of substitution between consumption goods; the capital income shares in sectoral outputs; the sectoral elasticities of substitution between capital and labor; and the degree of factor-bias in the technical change. These fundamentals determine the effect of aggregate income, relative prices, rental rates and technological progress on structural change. Finally, we estimate the aforementioned fundamentals from the Rotterdam model of demand and the translog cost functions to account for the contribution of each mechanism to the U.S. structural change. These econometric models provide the necessary flexibility to estimate the fundamentals, which allows for obtaining some new findings. In particular, we find that the main mechanism explaining the evolution of the employment share in services is income growth, whereas technological progress is the main mechanism in agriculture.