Structural Change and Economic Growth: Analysis within the Partially Balanced Growth-Framework

Transcription

1 Srucural Change and Econoc Growh: Analyss whn he Parally Balanced Growh-Fraework INAUGURALDISSERTATION zur Erlangung des Grades enes Dokors der Wrschafswssenschaf (Dr. rer. pol.) des Fachberechs Wrschafswssenschaf der FernUnversä n Hagen. vorgeleg von Dpl.-Volkswr Dens Sjepc a. Okober 200

2 Ersguacher: Unv.-Prof. Dr. Helu Wagner Zweguacher: Unv.-Prof. Dr. Alfred Endres Drguacher: Unv.-Prof. Dr. Thoas Echner Tag der Dspuaon: 9. März 20 II

3 ABSTRACT The er srucural change refers o changes n he secor-srucure of an econoy, where secors are soe heorecal groups of goods and servces (e.g. agrculural secor, anufacurng secor, servces secor). In fac, srucural change s one of he os srkng eprcal facs of he developen process; os pronen exaples of srucural change are ndusralzaon and ranson o a servces econoy. Even ore poranly, s well known ha srucural change has soe key pacs on econoy and socey, especally on (aggregae) econoc growh. Alhough srucural change has been known for a long e, srucural change heory has no been a ansrea research opc, especally no n he growh heory. Soe new research nroduced a new approach o sudyng srucural change, whch s ore n lne wh he ansrea growh heory. I nae hs approach parally balanced growh school ( PBGP-school ). Broadly speakng, hs new school of srucural change can be characerzed upon wo arbues (a aheacal one and a heorecal one): () The concep of parally balanced growh s used o sudy he dfferenal-equaon-syses of he heorecal odels. (2) The odellng fraework ay be regarded as neoclasscal n any ways. I elaborae aheacal and heorecal foundaons of he PBGP-school; especally, I dscuss he usage of parally balanced growh pahs n srucural change odellng and he negraon of srucural change no he ansrea neoclasscal growh odel (Rasey-Cass-Koopans-odel). I syseaze he leraure on srucural-change-odellng and negrae/classfy he new PBGPschool no hs schee. Fnally, I use he conceps of he PBGP-school for analysng soe acual econoc opcs relaed o srucural change and (long-run) econoc growh. Especally, by usng he PBGP-ehods I analyse he Kuznes- Kaldor-puzzle, he pacs of Offshorng on real GDP-growh and he effecs of deand-shfs assocaed wh populaon ageng. In fac, y work ples ha he ehods of he PBGP-school see o be valuable ools for analysng srucural change. Furherore, as I hope, y work provdes soe new and neresng nsghs no srucural change and econoc growh. III

4 In Chaper I, I provde an nroducon o y research. Subsequenly n Chapers II and III, I explan and dscuss he aheacal and odellng foundaons of y research. Chaper IV ncludes a syseazaon of srucural-changeodellng-leraure and he classfcaon of he PBGP-school and of y research. In Chaper V, I presen y effors on odellng he Kuznes-Kaldor- Puzzle, Offshorng and Ageng by usng he PBGP-ehods. Fnally, n Chaper VI here s a suary of y work. IV

5 CHAPTER I: Inroducon TABLE OF CONTENTS Defnons, Overvew, Movaon and Focus of he Analyss.... Defnon of secors and of srucural change (3) 2. Sylzed srucural-change-paerns: Kuznes-facs, Furasé-facs and Bauol-facs (7) 3. Why does srucural change ake place? The four an srucural change deernans ( 9) 3. Non-hoohec preferences across secors (0) 3.2 Dfferences n TFP-growh across secors () 3.3 Dfferences n oupu-elasces of npus across secors (2) 3.4 Shfs n neredaes producon across secors (3) 4. Why does echnology dffer across secors? (4) 5. Ipac of srucural change on he econoy: focus on aggregae growh (9) 6. The wo schools of srucural change odellng: Focus on he neoclasscal PBGP-school (22) 7. Furher heorecal/analycal resrcons of he analyss (27) 8. General value of he odels or: Whch saeens can be drawn fro he odels and whch no? (3) 9. Jusfcaon for he choce of opcs ha are analysed by usng PBGPodels (33) CHAPTER II: Key Analycal Tool: Dfferenal Equaon-Syse Analyss Defnons, Analycal Conceps and Mehods Basc ers (40) 2. Mehods and key-conceps of dfferenal-equaon-syse-analyss (44) 2. Mehods of dfferenal equaon syse analyss (44) 2.2. The qualave approach o dfferenal equaon syse analyss (46) 2.2. Dynac equlbru (46) Sably of dynac equlbru (53) Basc conceps and defnons of sably (53) Mehods for provng global and local sably of equlbru (58) Local sably (58) Global sably (60) Transonal dynacs (7) 3. Opal conrol (75) 3. The necessary condons for a axu (79) 3.2 Proof of suffcency (80) 4. Suary: Sep-by-sep procedure n connuous-e growh-odelng (82) LIST OF SYMBOLS of CHAPTER II (84) V

6 CHAPTER III: Key Modelng Approach: Inegraon of Srucural Change no a Neoclasscal Growh Model Key Assupons, Applcaon of Analycal Tools, Challenges n Srucural Change Modelng, Applcaon and Preses of PBGP-ehod An unbalanced growh odel (90). Assupons (90).2 Opaly condons (93) 2. Analycal challenges o srucural-change-analyss (95) 3. A balanced-growh ul-secor-odel (98) 4. A ruly neoclasscal ul-secor growh-odel (04) 5. Parally balanced growh (06) 5. An exaple of a parally balanced growh odel (06) 5.2 Exaples fro he leraure on how o creae parally balanced growh pahs (usage of a pror and a poseror knfe-edge condons) (0) 6. Valdy of neoclasscal odels n he lgh of srucural change and he downsde of knfe-edge-condon use (5) APPENDIX (9) LIST OF SYMBOLS of CHAPTER III (2) CHAPTER IV: Classfcaon/Syseazaon of Srucural Change Leraure and Classfcaon/Subordnaon of own Research Changes n capal srucure (29) 2. Changes n neredaes srucure (32) 3. Changes n consupon srucure (37) 3. Unbalanced school of srucural change (37) 3.2 New (PBGP) school of srucural change (42) 4. Classfcaon of own research (46) 5. Furher aspecs of classfcaon (49) 5. Srucural change nduced by rade openng (srucural change heory vs. rade heory) (49) 5.2 Facor reallocaon beween capal ndusres and consupon ndusres (Uzawa s srucural change) (5) 5.3 Facor-reallocaon beween he prvae secor and he publc secor (52) 5.4 Facor-reallocaon beween he research secor and he consupon secor (53) 5.5 Ousourcng of hoe producon (facor reallocaon beween hoesecor and arke-secor) (54) VI

7 CHAPTER V: Applcaon of he PBGP-Concep n Analyss of Srucural Change...55 PART I: A PBGP-Fraework for he Analyss of he Kuznes-Kaldor- Puzzle Inroducon (63) 2. Sylzed facs of secoral srucures (67) 2. Sylzed facs regardng cross-secor-heerogeney n produconechnology (67) 2.2 Srucural change deernans (68) 3. Model of neural cross-capal-nensy srucural change (69) 3. Model assupons (69) 3.. Producon (69) 3..2 Uly funcon (72) 3..3 Aggregaes and secors (75) 3.2 Model equlbru (78) 3.2. Opaly condons (78) Developen of aggregaes n equlbru (78) Developen of secors n equlbru (82) Conssency wh sylzed facs (84) The relaonshp beween srucural change and aggregaedynacs (90) 4. A easure of neuraly of cross-capal-nensy srucural change (95) 5. On correlaon beween preferences and echnologes (203) 6. Concludng rearks (209) APPENDIX A (24) APPROACH () (24) Necessary (frs order) condons for an opu (24) Proof ha suffcen (second order) condons are sasfed (25) APPROACH (2) (28) Producers (29) Households (220) Relaonshp beween ndvdual varables and econoy-wde aggregaes (224) APPENDIX B (226) APPENDIX C (230) APPENDIX D (243) APPENDIX E (245) APPENDIX F (248) LIST OF SYMBOLS of PART I of CHAPTER V (252) VII

8 PART II: A PBGP-Fraework for Analyzng he Ipacs of Offshorng on Srucural Change and real GDP-growh n he Dynac Conex Inroducon (265) 2. Model assupons (270) 3. Opu and equlbru (277) 4. Effecs of offshorng on growh of aggregaes (280) 4. The overall pac on aggregae growh (28) 4.2 Ipac channels and her relave porance (284) 5. The effecs of offshorng on srucural change (290) 6. Dscusson and plcaons (297) 7. Concludng rearks (30) APPENDIX A (306) APPENDIX B (307) APPENDIX C (309) APPENDIX D (33) APPENDIX E (35) APPENDIX F (36) LIST OF SYMBOLS of PART II of CHAPTER V (37) PART III: A PBGP-Fraework for Analyzng he Ipacs of Ageng on Srucural Change and real GDP-growh Inroducon (323) 2. Model assupons (330) 2. Uly (330) 2.2 Producon (333) 2.3 Nuérare (335) 2.4 Aggregaes and secors (337) 3. Model equlbru (338) 3. Opaly condons (338) 3.2 Aggregaes (339) 3.3 Secors (342) 4. Effecs of ageng (343) 4. Parally Balanced Growh Pah (PBGP) whou ageng (344) 4.2 Ageng and cross-secor dfferences n TFP-growh (347) 4.3 Ageng and cross-secor dfferences n npu-elasces (352) 4.3. Producvy effec: Ipacs and channels (353) Addonal pacs on GDP: The prce-effec (359) Transonal effecs of ageng on GDP (359) PBGP-effecs of ageng (366) Dynac aspecs (367) 5. Concludng rearks (368) APPENDIX A (373) APPENDIX B (379) VIII

9 APPENDIX C (380) APPENDIX D (390) LIST OF SYMBOLS of PART III of CHAPTER V (39) CHAPTER VI: Suary REFERENCES Currculu Vae...49 Erklärung lau 6(8) der Prooonsordnung...42 IX

10 X

11 CHAPTER I Inroducon - Defnons, Overvew, Movaon and Focus of he Analyss - The followng chaper s aed o provde an nroducon o y research. Especally n Secon, soe key defnons are provded. Secons 2-5 coprse soe general explanaons abou srucural change and s pacs on he econoy. In Secons 6-9, I explan he heorecal and analycal focus and he jusfcaon of y research.

12 TABLE OF CONTENTS for CHAPTER I. Defnon of secors and of srucural change Sylzed srucural-change-paerns: Kuznes-facs, Furasé-facs and Bauol-facs Why does srucural change ake place? The four an srucural change deernans Non-hoohec preferences across secors Dfferences n TFP-growh across secors Dfferences n oupu-elasces of npus across secors Shfs n neredaes producon across secors Why does echnology dffer across secors? Ipac of srucural change on he econoy: focus on aggregae growh The wo schools of srucural change odellng: Focus on he neoclasscal PBGPschool Furher heorecal/analycal resrcons of he analyss General value of he odels or: Whch saeens can be drawn fro he odels and whch no? Jusfcaon for he choce of opcs ha are analysed by usng PBGP-odels

13 . Defnon of secors and of srucural change In every econoy several goods and servces are produced and consued. In general, soe of hese goods and servces share soe coon arbues. Hence, can ake sense o group he goods and servces ha share coon arbues (snce, for exaple, n hs way s easer o cope wh he eprcal daa). In srucural-changeheory such groups of slar goods and servces are naed secors. Hence, he whole range of goods and servces s subdvded no secors, where each secor conans goods and servces ha are slar regardng soe arbues. For exaple, he bes known and he os basc secor-dvson of he econoy s () agrculure (prary secor) (2) anufacurng (secondary secor) (3) servces (erary secor) Noe ha he range of hese secors depends on he creron ha s used o foralze hs secor dvson. As dscussed by Krüger (2008), p.335, and Wolfe (955) here are several exaples: Fsher (939, 952) defnes hese secors upon deand behavour (where he degree of necessy decreases and he ncoe elascy of deand ncreases when approachng fro secor () o secor (3)) Wolfe (955) caegorzes hese secors upon he donan facor n producon Clark (957) defnes he range upon he naure of oupu of he secors (e.g. good vs. servce). Furherore, he hree-secor-dvson sees o be useful o explan he hsorcal developen of he ndusralzed econoes ha wll be dscussed laer (.e. he ranson fro agrculure o anufacurng and fro anufacurng o servces). 3

14 Anoher exaple of a (ore dsaggregaed) secor-dvson, whch I use n he eprcal sudy of Chaper V (Par I), s he secor-defnon fro he Sandard Indusral Classfcaon Syse, whch s used by he U.S. Deparen of Coerce (Bureau of Econoc Analyss). Ths defnon ncludes he followng secors: () Agrculure, foresry, and fshng (2) Mnng (3) Consrucon (4) Manufacurng (5) Transporaon and publc ules (6) Wholesale rade (7) Real rade (8) Fnance, nsurance, and real esae (9) Servces Ths whole dscusson ples ha here are any several ways o subdvde an econoy no secors, dependng upon he arbues, whch are used o group he goods and servces, and dependng upon he quesons, whch are analysed. In y research I do no choose any specfc secor-dvson, n general. In fac, I sudy odels where producon echnology dffers across secors and where he degree of dsaggregaon s no oo hgh. (Furherore, soe odels wll assue ha soe uly-funcon-paraeers, e.g. he ncoe elascy of deand, dffer across secors, as well.) My research does no requre any oher resrcon on he defnon of he secors. Hence, n fac every secor-defnon, where he echnology dffers across soe secors and he econoy s no oo dsaggregaed, s applcable o y research. In he essay on he Kuznes-Kaldor-Puzzle (n Chaper V) I provde eprcal evdence, whch shows ha producon echnology dffers srongly across secors, n 4

15 general. (Inuve explanaons of cross-secor echnology-dspares can be found n Secon 4 of he acual Chaper.) To su up hs dscusson I sugges he followng defnon: Defnon : Secors are heorecal groups of goods- and servces-varees. Secors are defned such ha echnology dffers across secors;.e. he average echnology of secor s no he sae as he average echnology of secor j a leas for soe and j; n oher words s assued ha he producon funcon, whch s represenave of secor, s no he sae as he producon funcon, whch s represenave of secor j, a leas for soe and j. he secor-dvson s exclusve,.e. a good- or a servce-ype can be assgned o only one secor; n oher words, a secor does no nclude goods and servces ha are assgned o anoher secor. Now, we urn o he defnon of he er srucural change. The er srucural change, as s used n y research, refers o a change n he secor srucure of he econoy. For exaple, n he early sages of econoc developen agrculure accouns for he larges par of real GDP, where n laer sages of econoc developen servces consue he bgges par of real GDP. (These eprcal facs are revewed n Secon 2 n deal.) Tha s, durng he developen process soe secors becoe ore poran n coparson o oher secors; hs s srucural change. Now, we have o fnd a easure of relave porance of secors. In general, 5

16 we could use secor-shares of real GDP o easure he relave porance of secors. However, n he leraure here s anoher easure of srucural change, whch s ore approprae for he as of y research: secoral eployen shares 2. Hence, f eployen-shares of secors change, srucural change akes place accordng o y defnon. Noe ha, n general, he dynacs of secor-shares of real GDP and he dynacs of secoral eployen shares are que slar (n eprcal fndngs and n y odels); hence, hey are que nerchangeable ndcaors of srucural change. However, n he analyss of he relaonshp beween srucural change and real GDP-growh secoral eployen shares are a ore eanngful srucural change ndcaor: As we wll see n Secon 5, he cross-secor labourallocaon deernes he average (econoy-wde) labour-producvy; hence, he allocaon of labour across secors s a deernan of real GDP(-growh). Overall, our defnon of srucural change allows us o sudy he pacs of srucural change on real GDP-growh n he os drec way. To su up hs dscusson I provde he followng defnon: Defnon 2: Srucural change sands for he change n he cross-secor laborallocaon, where secors are defned upon Defnon and cross-secor labor-allocaon s ndcaed by he secoral eployen shares. 3 Secor--share of real GDP eans he real oupu of secor dvded by real GDP. 2 Eployen share of secor eans he nuber (or: workng hours) of persons, whch are eployed n secor, dvded by he nuber (or: workng hours) of persons, whch are eployed n he whole econoy. 3 See he prevous foonoe. 6

17 2. Sylzed srucural-change-paerns: Kuznes-facs, Furasé-facs and Bauol-facs Srucural change s a well-known eprcal fac, whch has been suded even snce he 930es. Eprcal evdence on srucural change can be found n he papers/books by e.g. Fourasé (969), Kuznes (976), Maddson (980), Elfrng (989), Broadberry (997), Kongsau e al. (997, 200), Raser e al. (2003), Nga and Pssardes (2004), Broadberry and Irwn (2006) and Scheka and Yocarn (2006). Useful sources for daa on srucural change are: for EU-counres daa: EU KLEMS Projec (hp:// for US-daa: U.S. Deparen of Coerce (Bureau of Econoc Analyss) (hp:// for OECD-counres-daa: OECD STAN Indusry (hp:// In fac, all hs eprcal evdence ples soe sylzed facs of srucural change. Snce srucural change across secors agrculure, anufacurng and servces s he os dscussed one, I revew he sylzed facs abou hs srucural change n hs secon for he sake of copleeness. I wll show laer ha hese sylzed facs can be sasfed by y odels. Kongsau e al. (997, 200) forulae he followng sylzed facs, whch hey nae Kuznes facs : a) The eployen share of agrculure declnes durng he developen process. b) The eployen share of anufacurng s consan durng he developen process. c) The eployen share of servces ncreases durng he developen process. 7

18 I should be noed ha hese sylzed facs refer o he srucural-change-paerns over he las cenury. If longer perods are consdered, he developen of he anufacurng-secor-eployen-share s raher hup-shaped (as noed by Nga and Pssardes (2007) and Maddson (980)). Hence, alernave sylzed-facs of srucural change (whch ake accoun of he las wo cenures or so) can be forulaed, whch I nae Furasé-facs: a) The eployen share of agrculure declnes durng he developen process. b) The eployen share of anufacurng ncreases n early sages of developen ( ndusralzaon ) and decreases n laer sages of developen ( eralsaon ). c) The eployen share of servces ncreases durng he developen process. I nae hese sylzed facs afer Jean Fourasé who dscusses he n hs book (see Furasé (969), pp.8ff). These sylzed facs are also dscussed as beng he hreesecor hypohess and have already been noed by Fsher (939), accordng o Krüger (2008), p.332. Snce, accordng o Defnon 2, srucural change across echnologcally dsnc secors s n focus of y research, I should provde evdence ha hs sor of srucural change acually akes place. Eprcal evdence on he fac, ha n realy facors are reallocaed across echnologcally dsnc secors, s provded by: Close and Schulenburger (97), Bauol e al. (985), Maddson (987), p.666ff, Bernard and Jones (996), Broadberry (997), Curs and Murhy (998), Foser e al. (998), Dsney e al. (2003), Penderer (2003), Broadberry and Irwn (2006), Scheka and Yocarn (2006), UN (2006), Aceogly and Guerrer (2008), Nordhaus (2008), Valenny and Herrendorf (2008) and Duare and Resucca (200). 8

19 In fac, hese essays show ha even he Kuznes- and Furasé-sylzed-facs ply ha facors are reallocaed across echnologcally dsnc secors, snce agrculure, anufacurng and servces use dfferen echnology. (Even whn hese secors dfferen echnologes are used.) In fac, Wolfe s (955)-secor-dvson s based on echnologcal dfferences beween secors. Because Bauol s (967)-work popularzed he focus on secor-dfferences n echnology, I nae he fac, ha facors are reallocaed across echnology n realy, Bauol s sylzed fac. 3. Why does srucural change ake place? The four an srucural change deernans When lookng a he evdence on srucural change, one queson arses: why does srucural change occur? The leraure has already deal wh hs queson. In fac, here are four an ypes of cross-secor dspares ha cause srucural change. I nae he srucural change deernans and hey wll be dscussed now. As proposed by Scheka and Yocarn (2006), here are hree an deernans of srucural change: cross-secor shfs n fnal deand (non-hoohec preferences), cross-secor shfs n neredaes producon (ousourcng), and cross-secor dfferences n producvy growh. Noe ha dfferences n producvy growh can arse due o dfferences n TFP-growh and due o dfferences n oupu-elasces of npus across secors as wll be explaned below. (Soe furher srucural change deernans, e.g. nernaonal rade, whch are no n focus of y research, are dscussed n Chaper IV, Secon 5.) Eprcal evdence on he pac of hese deernans on srucural change s revewed, e.g., by Scheka and Yocarn (2006). Furher evdence s provded n Par I of Chaper V. I dscuss he evdence on he srucural change deernans n Par I 9

20 of Chaper V, snce he proof of her relevance s an negral par of ha Par, bu s less relevan for he oher Pars of Chaper V. The pacs of srucural-change-deernans on srucural change are jonly suded n he odel of Par I of Chaper V. Neverheless, n he followng, I explan how each of hese deernans causes srucural change by self and I provde soe references. Noe ha he followng explanaons are based on he long-run vew of he econoy, where perfec cross-secor-obly of facors and, n general, perfec arkes are assued. 3. Non-hoohec preferences across secors Non-hoohec preferences ean sply ha ncoe elascy dffers across goods. Hence, when ncoe ncreases, he deand does no ncrease unforly across goods;.e. he deand for soe goods ncreases ore srongly n coparson o he deand for oher goods;.e. deand s shfed across secors, whch produce hese goods. In general, s argued ha soe secors (e.g. agrculure) produce raher goods, whch are necesses (e.g. food); herefore, ncoe-elascy of deand s relavely low regardng hese secors. I s argued as well, ha oher secors (e.g. servces) produce raher goods whch are luxury goods; hence, ncoe-elascy of deand s raher hgh. For dscusson, references and eprcal evdence see e.g. Krüger (2008), p.335, Scheka and Yocarn (2006), pp.39ff, Laner (2000), p.546, Curs and Murhy (998). A cro-foundaon of non-hoohec preferences n ul-secor fraeworks s provded by Foell and Zweüller (2008) by usng Engel s Law. The deand-shfs, whch are caused by non-hoohec preferences, cause changes n relave profably of facor-use across secors and hus resul n facor reallocaon across secors,.e. srucural change. 0

21 Of course, an pulse s necessary, whch ensures ha ncoe ncreases over e. In y odels, hs pulse coes fro echnologcal progress. Non-hoohec preferences as a deernan of srucural change are odeled by, e.g., Kongsau e al. (200). Furher leraure, whch sudes he pac of nonhoohec preferences n srucural change fraeworks, can be found n Secon 3 of Chaper IV. 3.2 Dfferences n TFP-growh across secors If he growh rae of producvy dffers across secors, secors can expand her producon a dfferen raes for a gven facor allocaon. Tha s, produconpossbles grow a dfferen raes across secors. Or he oher way around: secors ha feaure relavely hgh producvy-growh-raes ( progressve secors ) can lower her prces over e ore srongly n coparson o secors wh relavely low producvy growh raes ( sagnan secors ), for a gven cross-secor facor allocaon and for a gven prof rae. 4 Tha s, he relave prces are changng. Consuers respond o changes n relave prces; hus, deand s shfed across secors. These deand shfs cause facor reallocaons slar o hose dscussed n Secon 3.; hus, srucural change arses. Noe, however, ha here are wo dfferen forces regardng hs facor reallocaon: On he one hand, he (relave) producon possbles ncrease n he progressve secors (n coparson o sagnan secors). Ths effec ples ha less facors are requred n he progressve secors o produce a gven aoun of goods. Effec 4 Of course, snce we consder long-run perfec arkes wh perfec obly, he prof rae s equal o zero.

22 On he oher hand, (relave) deand ncreases n he progressve secor due o relave prce reducons. Ths effec ples ha ore facors are requred for producon n progressve secors. Effec 2 Hence, wheher facors are reallocaed o progressve secors or whdrawn fro he depends on whch of he wo effecs s sronger. We know ha Effec 2 depends on he prce elascy of deand. If prce elascy of deand s relavely hgh (low), households reac very srongly (weakly) o prce-changes. Therefore, f prce elascy of deand s relavely hgh (low), Effec 2 s relavely srong (weak) and facors are reallocaed o (whdrawn fro) he progressve secors. Ths arguenaon ples ha here us be a ceran prce elascy whch ensures ha Effecs and 2 are equally srong hence no facors are reallocaed across secors. In fac, can be shown ha hs s he case when prce elascy s equal o one (see e.g. Nga and Psssardes (2007)). The pac of cross-secor-tfp-dfferences on srucural change s odeled by, e.g., Bauol (967) and Nga and Pssardes (2007). For furher leraure, see Chaper IV, Secon 3. Now, he queson arses why does TFP-growh dffer across secors. Regardng hs queson and eprcal evdence see Secon Dfferences n oupu-elasces of npus across secors Assue ha oupu-elascy of labor dffers across secors; hs ay be he case when capal s nroduced no producon funcons. Especally, assue ha here are labor-nensve secors (.e. secors ha feaure hgh oupu-elascy of labor) and capal-nensve secors (.e. secors ha feaure low oupu-elascy of labor). Furherore, assue ha he real wage-rae ncreases, ceers parbus. Hence, he average producon coss n labor-nensve secors ncrease ore srongly n 2

23 coparson o he average producon coss of capal-nensve-secors, ceers parbus. 5 Therefore, when he wage rae ncreases, he labor-nensve producers us ncrease her prces ore srongly n coparson o capal-nensve producers, for gven prof raes, ceers parbus. Tha s, relave prces change. These relave prce changes cause facor reallocaons n slar anner as n Secon 3.2,.e. srucural change arses. Lke n Secon 3.2, prce-elascy plays an poran role for he agnude/drecon of he resulng srucural change. Agan, an pulse s necessary o ncrease he wage rae. In y odels hs pulse coes fro echnologcal progress. (I s known fro neoclasscal growh heory, e.g. he Rasey-Cass-Koopans-odel, ha an ncoe-ncrease assocaed wh echnologcal progress, causes an ncrease of he wage rae. In hs respec y odel s he sae; see, e.g., equaon (33) n Par I of Chaper V. (For a dscusson of he Rasey-Cass-Koopans-odel, see, e.g., Barro and Sala--Marn (2004), pp.85ff, or Chaper III.) For exaple, Aceoglu and Guerrer (2008) provde a odel, whch explans exacly how cross-secor dfferences n oupu-elasces of npus cause srucural change. For furher leraure, see Chaper IV, Secon 3. In Secon 4, I provde nuve arguens for why oupu-elasces dffer across secors. 3.4 Shfs n neredaes producon across secors Assue ha each secor produces no only fnal goods, bu neredae goods as well, whch are used n he own producon and n he oher-secors producon. 5 The reason for hs fac s sple: labor-nensve secors use relavely uch labor (n opu); hence, a relavely large par of her average producon coss s due o wage payens. 3

24 Dfferences n producvy-growh across neredaes producon cause changes n neredae prces. Hence, cos-nzng producers change her neredaenpu-srucure. Hence, here are changes n neredae deand across secors; hey cause facor-reallocaon across secors. Models, whch explan hs channel exacly, are provded by, e.g., Fxler and Segel (999) and Nga and Pssardes (2007). Furher leraure can be found n Chaper IV, Secon 2. The fac ha each secor uses neredaes fro oher secors s obvous and can be seen fro Inpu-Oupu-Tables of every counry. I s obvous ha he os of he oday s very coplex producs are produced by usng any dfferen neredaes fro any dfferen secors. Jus hnk abou whch resources, pars and servces are necessary o produce and sell a car. 4. Why does echnology dffer across secors? Eprcal evdence on echnology-dfferences across secors (oupu-elascy of npus as well as TFP) s dscussed n Par I of Chaper V. Why hese dfferences exs s que obvous: The naure of he fnal-produc dffers across secors srongly. Therefore, he (physcal) producon processes, he resources whch are used n producon, he secoral arke-srucures, he degree of echnology-spllovers fro oher secors/ndusres as well as ransfer-process of he fnal-produc o he consuer dffer across secors srongly. In general, hese dfferences affec he scope for echnologcal nnovaon, raonalzaon (subsuon of labor by capal) and dvson of labor for a gven level of echnologcal developen. In fac, hese dfferences are (n par) he key creron of secor-dvson accordng o Wolfe (955). 4

25 These aspecs can be bes undersood by coparng he producon process of a poao and he producon process of a servce lke counselng by a psychologs: The key resrcng resource n he producon process of a poao s land. Hence, o soe exen, he producvy ncreases n poao producon are resrced by he avalably/exen of land and by growh raes of naural producs (e.g. oday a poao sll requres soe e o grow). On he oher hand, n psychologcal counselng naural resources are raher unporan. Hence, n psychologcal counselng here s no scope for producvy proveens by ncreasng he usably of he naural resource. The oher way around, he producvy proveens n counselng are no resrced by provably of land-use or by naural growh raes. (Raher, oher facs resrc he producvy of counselng.) These arguens are relaed o Wolfe (955), p.44ff. To see how ncluson of land n he agrculural producon-funcon leads o dfferen secoral producvy paraeers, see, e.g., he odel by Laner (2000). The producon of a poao ncludes a lo of echancal processes. Tha s, a huan (or a achne) us ove soe physcal aers fro one place o anoher n order o produce a poao, e.g. he seed us be spread and he poaoes us be harvesed. Hence, a lo of labor can be subsued by capal (= raonalzaon), when relavely sple echancal achnes are nvened. In conras, echancal processes are no poran for psychologcal counselng (excep for he fac ha he paen us coe o he psychologs). Hence, raonalzaon of he counselng process by sple achne-nnovaons s very resrced or even possble. Hence, psychologcal counselng s necessarly labor-nensve. (Ths arguen s relaed o Wolfe (955), pp.46ff, and Klevorck e al. (995), pp.87f. Klevorck e al. (995) provde a sudy where hey ry o asses he echnologcal possbles of several ndusres.). Therefore, n psychologcal 5

26 counselng s no/few scope for producvy-ncreases by echnologcal nnovaon relaed o capal. Of course, we can hnk of nellgen robos ha have he fne eoonal sensbly of a huan. However, hs sees very fuursc. (Furherore, he queson s wheher such robos are regarded as achnes or as huans ; n he laer case he usage of such robos would no decrease he labornensy of counselng). To su up: The raonalzaon of soe ndusres/secors ay requre very fne/sophscaed echnology developens (e.g. cro-chp), whch us be based on soe basc echancal/checal/physcal nnovaons (seel, plasc, elecrcy). These basc nnovaons ay raonalze he producon process of soe secors (poaoes); herefore, even n early sages of echnologcal developen soe secors ay be raonalzed, especally secors whch nclude a lo of echancal processes. However, he ndusres/secors, whch requre fne echnology proveen for raonalzaon, (psychologcal counselng) ay rean very labor-nense over he os phases of echnologcal/econoc developen (or for ever ). The aoun of echnology-spll-overs fro oher secors s as well deerned by he naure of he produc. The producon process of a poao was very enhanced by soe echnologcal nnovaons of he anufacurng secor, where he anufacurng secor s very echnologcally progressve due o he effecs dscussed above/below aong ohers. In conras, psychologcal counselng profed hardly fro anufacurng-secor-advances. (Ths arguen s relaed o Klevorck e al. (995), p.90f.). The srengh of echnology-spll-overs fro anufacurng o poao producon s aong ohers due o he fac ha boh nclude a lo of echancal processes. Whle a poao can be ransferred o a consuer whn few seconds, psychologcal counselng servces requre he peranen personal conac of he 6

27 servce provder o he consuer. Ths dfference anfess he hgh labor nensy of counselng servces. In fac, n counselng servces labor s self he end-produc (Bauol (967), p.46). Ths aspec has also anoher sde (see also Blnder (2007) for an neresng sudy regardng he followng fac): In fac, he psychologs could analyze s paen va lfe-srea va nerne. However, a asseur canno ransfer s servce va councaon and nforaon echnologes. Hence, any ndusres, ha requre drec personal conac n order o ransfer he fnal produc o he consuer, feaure fewer producvy proveens fro o echnologcal progress n nforaon and councaon echnologes. The dfferen sages of poao producon can be conduced by dfferen persons/producers/eployees. Hence, producvy of poao producon can be ncreased by labor-dvson, by beer organzaon of he producon process and by specalzaon on a specfc sage of he producon process (e.g. ousourcng or labor-dvson a la Ada-Sh). In conras, psychologcal counselng requres ha he larges par of he process s conduced by one person. Soe furher arguens/leraure are/s dscussed by Klevorck e al. (995), pp.86f, and Pav (985), pp.365ff. These arguens are relaed o he arke srucure (ha s caused by naure of he fnal produc) and s pacs on he R&D-effors of he frs. For exaple, dependng upon he naure of he produc, he exsng arke srucure ay conss of large frs (poaoes), and hence ore R&D ay be naed by he n coparson o oher envronens (counselng) where frs are raher sall (and hus canno cope wh large R&D-sunk-coss). Furherore, he sze of deand, he fracon of R&D-reurns ha a fr s able o rean (large vs. low spllovers/exernales) and he ype of copeon depend 7

28 on he naure of he fnal produc as well and can cause cross-secor dfferences n R&D and hus n echnology(-progress). In fac, hs dscusson ples ha here s a srong e-coponen n cross-secor echnology dfferences. I sees ha here s a pah of echnologc developen: In he begnnng, here are nnovaons, whch raonalze echancal processes. Raonalzaon of echancal processes s relavely sple and herefore sands a he begnnng of he echnologcal developen pah. Indusres/secors (especally anufacurng), where echancal processes are a key coponen of he producon process, prof fro hese nnovaons. Over e, he raonalzaon of echancal processes progresses and he echnologes ha are used becoe ore and ore sophscaed and he aggregaed ncoe ncreases. Ths whole process s naed ndusralzaon. Durng hs process he bass for fne echnologes s consued. Ths bass and he ncreasng ncoe (and hus ncreasng deand for luxury servces) open he door for echnologcal progress n secors/ndusres, where echancal processes are no he core of he producon process, especally n soe servces ndusres. Ths phase s ofen naed erarsaon. In fac, wha we learn fro hs whole dscusson s ha secoral echnologes dverge durng he ndusralzaon (when coparng anufacurng and servces). However, durng he eralsaon and especally n fuure he echnologes could converge agan. The queson s, wheher he echnologcal progress n anufacurng wll be srong enough o counerac hs process. In fac, as dscussed by Pav (985) and Klevorck e al. (995), here sees o be a pah dependence of echnologcal progress o soe exen. Tha s, uch of echnologcal progress n pas consues uch of fuure echnologcal progress. However, he new possbles whch are opened o 8

29 echnologcal progress n servces by he developen of he cro-chp could be sronger and prove he servces echnology o unbelevable levels n fuure. Overall, s hard o fnd a srong reason for he assupon ha fuure echnologydevelopen-paerns wll rean he sae as n pas. Acually, hs dscusson s he bass for he long-run-ndependency-dscusson n Par I of Chaper V. I argue here (by usng purely nuve arguenaon) ha (for gven preference paraeers) we have no reason o assue ha hgh-ncoe-elascysecors (lke soe servces) wll rean echnologcally nferor. Ths sees o be a very neresng and valuable opc for fuure research. Noe, however, ha I have no researched very uch n hs feld; y research-focus was raher on he plcaons of acual cross-secor echnology dfferences, nsead on he reasons for and fuure developen of hese dfferences. 5. Ipac of srucural change on he econoy: focus on aggregae growh Srucural change has several effecs on he socey and he econoy. For exaple, he Kuznes facs ply ha an ncreasng par of anufacurng-secor-labor s reallocaed o he servces secor; hence, he naure of workng asks and he workng envronen changes, whch ay have soe pac on he socey; e.g., Pugno (2006) argues ha he econoy-wde huan capal ay ncrease due o hs change n asks (whch ay ncrease econoc growh); snce dfferen secors requre dfferen sklls, srucural change requres changes n he educaon syse, as noed by Blnder (2007); 6 6 Especally, very dfferen skll ses are requred when coparng he anufacurng and he servces secor. 9

30 he reallocaon of labor across secors ay cause shor-run o edu-run uneployen, and he rae of naural uneployen ay be affeced by he srengh of srucural change n he edu-run; 7 see e.g. Aronson e al. (2004); srucural change affecs he growh rae of aggregaes (e.g. he growh rae of real GDP, aggregae capal and aggregae consupon expendures), as I wll show soon. For all hese reasons sees o be poran o sudy and predc he changes n srucural change paerns and he changes n srucural change srengh. In y research I focus solely on he sudy of srucural change self and on he pac of srucural change on he growh rae of aggregaes. The oher pacs (e.g. pacs on uneployen) are no n focus of y research. Eprcal evdence on he pac of srucural change on aggregae growh s provded by, e.g., Robnson (97), Madsson (987), pp.666ff, Dowrck and Geel (99), Bernard and Jones (996), Broadberry (997,998), Foser e al. (998), Berhély and Söderlng (999), Porson (2000), Casell and Colean (200), Teple (200), Dsney e al. (2003), Penderer (2003), Broadberry and Irwn (2006), UN (2006), Nordhaus (2008), Resucca e al. (2008) and Duare and Resucca (200). Now, I presen a very shor odel, whch s based on he odel by Bauol (967), o explan why srucural change has an pac on he growh rae of aggregaes. Assue a long-run growh odel where wo secors (A and B) exs and where labor s he only npu-facor. The secors dffer by producvy: 7 Noe ha n he long run srucural change canno cause uneployen, snce long-run s defned upon full cross-secor-obly of labor. 20

31 () Y Al L A = A (2) Y Bl L B = B (3) l A l = + B where Y ( Y ) s he oupu of secor A (B), l ( l ) s he eployen share of secor A B A (B), A (B) s he exogenous producvy paraeer of secor A (B) and L s he aggregae aoun of labor. Equaon (3) ples ha we absrac fro uneployen. The real GDP (Y) s soe weghed average of he secoral oupus (4) Y aya + ( a) YB where a s he weghng facor beween he secors. (Laer, I wll dscuss n deal.) Inserng equaons () and (2) no equaon (4) yelds (5) Y = L[ aal + ( a) ] A Bl B Reeber ha srucural change eans changes n l and l. 8 Equaon (5) ples ha changes n l and l lead o changes n Y. Hence, srucural change has an A B pac on real GDP(-growh). In fac, hs s he qunessence of he relaonshp beween srucural change and aggregae growh. Of course hs s a very sple odel; however, shows why srucural change affecs aggregae growh. In Chapers III and V, I analyse he generalzaons of hs odel. For exaple, I assued here ha he weghng facor a s exogenous. However, soees, when real GDP s calculaed wh he chanweghs-ehod, he weghng facor depends on he acual secoral oupus and hence on srucural change. (For a sple explanaon regardng hs fac, see e.g. Sendel 995). However, I wll show n Pars II and III of Chaper V ha, despe hs fac, srucural change sll has an pac on real GDP-growh. Furherore, capal A B A B 8 If A and B grow a dfferen raes, could be shown ha srucural change akes place n hs odel, lke n he odel by Bauol (967). Furherore, srucural change could be generaed by he assupon ha preferences are non-hoohec across goods A and B. 2

32 and explc assupons abou household-behavour could be negraed no hs odel. In hs way could be shown ha srucural change has an pac on he growh rae of aggregae capal and consupon expendures. 6. The wo schools of srucural change odellng: Focus on he neoclasscal PBGP-school The larges par of ansrea growh heory s based on he concep of balanced growh. Tha s, he os odels feaure assupons whch ensure he exsence of a balanced growh pah (or: seady sae). A balanced growh pah s a rajecory where all (relevan) varables grow a a consan rae. (For dealed dscusson see Chaper II.) For exaple, he sandard neoclasscal growh odels, lke he Solow-odel or he Rasey-Cass-Koopans-odel, generae an equlbru ha can be descrbed by wo dfferenal equaons. These dfferenal equaons deerne he growh pahs of consupon and capal. The assupons of hese odels are such ha hs dfferenal equaon-syse feaures a sable (convergen) equlbru growh pah, where capal and consupon grow a a consan rae. Hence, he equlbru growh pah s a balanced growh pah. (See also Chapers II and III for dealed explanaons and dscusson.) The convenen feaure of he balanced growh approach s ha he growh raes of he varables are no sae-dependen along he balanced growh pah. Tha s, he growh raes can be easly derved as funcons of exogenous odel paraeers, and phasedagras/sulaons are only necessary o sudy he ransonal dynacs. (For deals see Chapers II and III.) Furherore, he balanced growh pah s conssen 22

33 wh he eprcal evdence known as Kaldor s sylzed facs of econoc developen. 9 (See also Kongsau e al. (200)). Therefore, s no surprsng ha nearly he whole neoclasscal growh heory (see e.g. he book by Barro and Sala--Marn (2004)) s based on he balanced growh concep. Unforunaely, he heorecal leraure ples ha s no easy o negrae srucural change no he balanced growh concep; see Chaper III. In he followng I provde exaples of hs leraure. More leraure-exaples are provded n Chaper IV. Bauol s (967)-odel ples ha he growh rae of aggregae oupu s no consan, f here are a leas wo secors (whch dffer by producvygrowh). In conras, he Solow-Model or he Rasey-Kass-Koopans-odel ply ha he growh rae of aggregae oupu s consan along a balanced growh pah. Kongsau e al. (200) and Meckl (2002) show ha neoclasscal balanced growh heory can be conssen wh srucural change only f soe paraeer resrcons are assued. However, hey canno provde any heorecal raonale for hese paraeer resrcons. The paper by Aceoglu and Guerrer (2008) ples ha he neoclasscal balanced growh pah does no exs as long as srucural change akes place and as long as secors dffer by oupu-elascy of npus. Hence, srucural change odels ply ha balanced growh heory s no necessarly applcable as long as srucural change akes place. Ths sees o be a serous crque 9 Kaldor facs are dscussed n Par I of Chaper V. 23

34 pon o balanced growh heory (neoclasscal growh heory), snce srucural change s one of he bes known eprcal facs. Overall, sees ha here exs wo schools of growh heory whch conradc each oher: balanced growh school and srucural change school. The balanced growh school sands for he ansrea neoclasscal growh heory. The odels of he balanced growh school are cro-founded (e.g. hey use uly funcons). The srucural change school sands for he srucural change odels where no balanced growh pahs exs (as long as srucural change akes place), e.g. he odels by Bauol (967), Echevarra (997), Laner (2000) and Aceoglu and Guerrer (2008). Noe ha he srucural change school s no necessarly conssen wh Kaldor s sylzed facs. (Kaldor s sylzed facs requre ha capal, consupon and oupu grow a a consan rae,.e. he growh pah us be balanced, whle he srucural change school feaures unbalanced growh pahs.) Furherore, snce he srucural change school does no rely on balanced growh pahs, he analyss s relavely coplcaed (whch wll be deonsraed n Chaper III). Therefore, he odels fro he srucural change school ake eher very sple assupons (e.g. capal s oed n he odel by Bauol (967)), or sulaons are necessary o oban he odel resuls (e.g. n he odels by Echevarra (997) and Aceoglu and Guerrer (2008)); see also he leraure dscusson n Secon 3. of Chaper IV. Sulaons are a very useful ool n econoc odelng; however, hey feaure several dsadvanages: A (nuercal) sulaon sees o be lke a black box n coparson o analycally solvable odels: Tha s, n relavely coplex nuercally solved odels s dffcul o undersand why ceran growh dynacs arse. Thus, requres a broad knowledge abou analycally solvable odels o guess whch facors led o ceran dynacs. Therefore, developng analycally solvable 24

35 srucural change odels sees o be poran: hey can help o undersand he several channels along whch srucural change deernans affec srucural change and hus real GDP-growh; hence hey can help o undersand nuercally solvable odels. The resul of a nuercal sulaon s only applcable o he daa whch s used. Hence, for exaple a srucural change sulaon for he USA, does no say anyhng abou srucural change n Gerany. Hence, for each specfcaon of paraeers a new sulaon s necessary. Therefore, s dffcul o derve general heorecal resuls fro nuercal odels. (See also Barro and Sala--Marn (2004), p.3). Soees s possble o derve he paraeer-range for whch he baselne resuls of a nuercal soluon hold (however, hese ess do no provde 00%-cerany). However, I have no seen such an approach n srucural change heory. Furherore, he proble wh such paraeer range s ha he paraeers whch are dsplayed by he copuer are solely nubers, bu no soe paraeer relaons (equaons). Hence, s dffcul o asses wheher hese nubers wll hold n fuure and s dffcul o derve soe crofoundaon for hese nubers. In general, hs proble does no appear n analycally solvable odels: f analycally solvable odels feaure soe paraeer resrcons, hese resrcons can be derved as paraeer-equaons or -relaons (lke n he odels by Kongsau e al. (997,200)). Hence, s easer o derve a cro-foundaon for hese paraeer resrcons. In fac, n he essay abou he Kuznes-Kaldor-Puzzle (Chaper V) I ry o derve a crofoundaon for he paraeer-resrcons of he Kongsau e al. (997,200)- odel. 25

36 So we can conclude ha developng analycally solvable srucural change odels s poran for undersandng srucural change and for dscusson abou fuure srucural change. Movaed by hese challenges (n par), a new school eerged n he growh heory (he PBGP-school ) whch aeps o erge he balanced growh school and he srucural change school by nroducng he concep of parally balanced growh. A parally balanced growh pah (PBGP) feaures a he sae e balanced growh of aggregaes and unbalanced growh of dsaggregaed varables. Tha s, along a PBGP, aggregae oupu and aggregae capal grow a a consan rae and a he sae e srucural change akes place (e.g. secoral oupu shares change). Hence, he convenen feaures of PBGP-analyss are: Lke he neoclasscal-growh-odels, PBGP-odels are analycally solvable. Hence, we can derve n a convenen way relavely ransparen explanaons and general heores abou srucural change (and aggregae growh). Many aspecs of srucural change becoe easly analysable. Ths akes srucural change heory ore ransparen and ore aenable o a larger group of scens (especally hose who are falar wh neoclasscal analyss.) The odels are conssen wh he Kaldor-facs (see also e.g. Kongsau e al. 200). Snce he PBGP s conssen wh he equlbru growh pahs of he balanced-growh-school, developng PBGP-odels can help o reduce he crque on he ansrea balanced-growh school ( Balanced growh school s conssen wh srucural change. ) However, should be noed ha he exsence of a PBGP requres soe resrcons n he generaly of he assupons. Therefore, ofen a PBGP-odel canno depc all 26

37 he srucural change channels. Neverheless, relevan heorecal resuls can be derved by usng he PBGP-concep. Ths opc wll be dscussed n Secon 8 n deal. To y knowledge, Kongsau e al. (997, 200) are he frs who nroduced he concep of PBGP-analyss no srucural change heory. Several auhors followed: Meckl (2002), Nga and Pssardes (2007) and Foell and Zweüller (2008). (These essays are dscussed n Chapers III and IV). I focus on he PBGP-analyss of srucural change as well. In hs sense, y research as o conrbue o he developen of he PBGP-school of srucural change by elaborang s foundaons, classfyng and applyng o several opcs assocaed wh srucural change. Especally, I focus on hree opcs whch are assocaed wh srucural change and whch are dealng wh soe key sylzed facs of econoc developen and/or soe general acro-econoc rends: he Kuznes-Kaldor-puzzle, he pac of offshorng on srucural change and aggregae growh and he pac of ageng on real GDP-growh va srucural change. These opcs are explaned n Secon 9. Noe ha I focused on hese hree opcs, snce hey see o e os poran (see Secon 9). However, he PBGP-ehod sees o be applcable o any ore opcs and sees o be neresng for furher research o fnd such opcs. 7. Furher heorecal/analycal resrcons of he analyss I sudy srucural change n he consupon goods secor. Tha s, I assue ha here are secors ha produce heerogenous consupon goods. On he oher hand, can be assued, e.g., ha here are several ypes of capal and ha hese ypes of capal are produced by dfferen secors. Hence, srucural change n he capal-goods-secor 27

38 could be analysed as well. However, heerogeneous capal goods (and hence srucural change n he capal-producng secor) have been suded exensvely n he neoclasscal endogenous growh leraure (e.g. n odels where physcal capal and huan capal exss). Srucural change n capal producon and oher ypes of srucural change are dscussed n Chaper IV. I should be noed here ha all he odels, whch are developed n Chapers III and V, are long run growh odels. Tha s, I assue ha here s perfec facor obly across secors prces are flexble and capal can be accuulaed. The ncluson of capal no analyss s a key o y research for wo reasons: () Soe heorecal/eprcal quesons sply requre he consderaon of capal n srucural change analyss. For exaple, he analyss of he Kuznes- Kaldor puzzle (see also he correspondng essay n Chaper V) requres a odel of srucural change ha akes capal accuulaon no accoun, snce Kaldor-facs suarze anly soe eprcal facs ha are relaed o capal. A odel, where no capal exss, s coparable o only one Kaldor fac: he consancy of he oupu-growh-rae. All he oher Kaldor-facs (.e. ncreasng capal-nensy, a consan capal-o-oupu-rao, a consan real rae of reurn on capal and a consan ncoe-dsrbuon beween capal and labor) requre he ncluson of capal no analyss. (2) Capal-accuulaon s sll regarded as one of he key growh drvers. I has been exensvely suded n he neoclasscal growh leraure. Hence, n general, sees poran o sudy he relaonshp beween srucural change and capal accuulaon and vce versa. Indeed, here sees o be a 28

39 relaonshp beween capal-accuulaon and srucural change, as wll be dscussed n Par II of Chaper V: Frs, snce srucural change affecs he producvy of facors, capal accuulaon s affeced by srucural change, 0 and we know fro he neoclasscal growh leraure ha capal accuulaon s poran for aggregae growh. Second, he labor, whch s avalable n an econoy, can be used for consupon-goods-producon and for capalgoods-consupon. Hence, f for soe reasons labor s reallocaed o capalproducon, has o be whdrawn fro consupon-goods-producon. If a saller share of labor s used n he consupon-secor, all producvy effecs, whch arse fro labor-reallocaon whn he consupon-goodssecor, becoe less poran fro he vewpon of he econoy as a whole. Hence, he reallocaon of labor beween capal-goods-producon and consupon-goods-producon has an poran effec on he relaonshp beween consupon-goods-srucural change and aggregae growh. Ths arguen wll be of specal porance n he Offshorng-essay and s also dscussed n Secon 5 of Chaper IV. (3) In realy, capal s used n producon. Producon funcons wh capal, n general, generae (addonal) srucural change dynacs. For exaple, he essay by Aceoglu and Guerrer (2008) ples ha (consupon-ndusres- )srucural change arses fro he fac ha capal and labor can be subsued n producon. Besde of he fac ha here are several consupon-goods secors, all assupons n y research are very neoclasscal: I assue neoclasscal (represenave) uly 0 Reeber, ha we know fro neoclasscal growh heory ha he rae of capal accuulaon depends on producvy growh; srucural change affecs producvy growh. 29