Scale and the origins of Structural Change

Transcription

1 Scale and the origins of Structural Change by Buera and Kaboski (JET, 2012) presented by Salvatore Lo Bello Macro Reading Group, UC3M 10 May, 2017

2 Structural Change, Marketization and Mass Consumption A broad view of the process of development includes 3 important features: 1 changes in relative size of sectors; 2 marketization of home production; 3 introduction of modern technologies into the household. This paper: scale of production is key for understanding the joint dynamics of the 3 phenomena. Develop a model with multiple sectors (different efficient scales) + home production, and different technologies. Able to replicate some key empirical findings.

3 Contibution of This Paper 1 Establish average scale differences between manufacturing and services. 2 Panel data patterns on output shares across broad sectors for 31 countries. 3 Document reversal of marketization for some services in the US. 4 Theory that can account for the facts above. Importantly, the theory can account for hump shape pattern of manufacturing.

4 Preview of Results - Transitional Dynamics of the Model The model economy transits from a stagnant, traditional, home production economy to a growing market economy. Neutral productivity growth determines 3 phases of development: 1 traditional home production economy (agriculture); 2 marketization (manufacturing and services, home production ); 3 mass consumption economy (demarketization: manufacturing, services, home production ).

5 Scale of Production: Manufacturing vs. Services (1/2)

6 Scale of Production: Manufacturing vs. Services (2/2) Average scale of manufacturing vs. services establishment: US (1998): 47 vs. 14; Mexico (1997): 15 vs. 4; India (2005): 6 vs. 4.

7 Evolution of Output Shares

8 Marketization and Demarketization

9 Summary of Empirical Findings Modern scale technologies characterize both manufacturing and services. Average scale of manufacturing >> average scale of services. Industry and services grow along development, but manufacturing grows faster (hump shape). Suggestive evidence on demarketization of some services (US), accompanied by spread of manufacturing goods.

10 Preferences Household holds preferences over a continuum of discrete, satiable wants z R +. u(c, H) = where H(z) C(z). 0 C(z) : R + {0, 1}. (consume or not) [H(z) + ν (1 H(z)))] C(z) dz, H(z) : R + {0, 1}. (home produce or not) 0 < ν < 1: home production is more customized. Households only consume services (manuf. goods are an intermediate input).

11 Technology Three technologies for producing services: 1 Traditional: S 0 (z) = z 1 L 0. [agriculture] 2 Modern Market { Service: 0 if K < q S M (z, t) = min{n, e γt z λ L M } if K = q. 3 Modern Home { Service: 0 if K < q S H (z, t) = min{1, e γt z λ L H } if K = q. One technology for producing manufactured goods: (Market) Manufactured Goods: G(z, t) = e γt z λ L G.

12 Household s Problem M(z) : R + {0, 1}. (use modern technology or not) max u(c, H) = M(z) H(z) C(z) s.t. 0 = 1 0 [H(z) + ν (1 H(z)))] C(z) dz, C(z) H(z)M(z)qp G (z) + [1 H(z)] p }{{} S (z) dz }{{} manuf cons. service cons. 0 H(z) e γt M(z)z λ + [1 M(z)] z dz. }{{}}{{} modern home prod. trad. home prod.

13 Dynamics of Consumption Optimal Thresholds Condition 1: q(1 1 n 1+ q n 1 ν ν. Proposition 2: under Condition 1, there exist time intervals characterized by t 0 and t 1, t 0 < t 1, such that: 1 for t [0, t 0 ), z 0 (t) = z(t) = z(t); 2 for t [t 0, t 1 ), z0(t) 3 for t [t 1, ), z0(t) = z(t) < 0, < 0, z(t) > 0; ln z(t) = ln z(t) > 0.

14 Product Cycles Corollary 3: the range of wants follow one of three distinct product cycles over time: services z (0, z o (t 1 )) transition from being home produced with trad. technology to being home produced with modern technology; services z [z 0 (t 1 ), z 0 (t 0 )] transition from being home produced with trad. technology to being market services between t (t 0, t 1 ], and then transition to home produced with modern technology after t 1 ; services z (z 0 (t 0 ), ) transition from being market purchased to being home produced with modern technology at some t 2.

15 Structural Change Proposition 4: the evolution of output (and consumption) shares are characterized by three phases: 1 for t [0, t 0 ), y A (t) = c A (t) = 1, y G (t) = y S (t) = c G (t) = c S (t) = 0; 2 for t [t 0, t 1 ), y A(t) c S (t) > 0, c G (t) = 0; 3 for t [t 1, ), y A(t) = c A(t) < 0, = c A(t) y G (t) = ( y G (t) y S (t) ), c G (t) = ( c G (t) c S (t) ) y S (t), c S (t) > 0 iff q < 1+λ 1 λ. < 0, yg (t), y S (t) > 0, y G (t) y S (t) = q n, > 0; in addition, Proposition 6: assume Condition 1 and t t 1, then [y M (t)/y S (t)] n, [c M(t)/c S (t)] n < 0. growth in optimal scale of services may explain the downward part of the hump shape (avg. scale of services by 70% between 1947 and 1998).

16 Concluding Remarks We have highlighted several empirical aspects of broad structural change. Scale technologies can be important in explaining the movement across economic sectors and product cycles. Spread of manufactured goods into the home leads to demarketization of services. Increase in the scale of services could explain the late increase of services vs. manufacturing.