Endowment structures, industrial dynamics, and economic growth
Jiandong Ju, Justin Yifu Lin, Yong Wang
Motivated by four stylized facts about industry dynamics, we propose a theory of endowment-driven structural change by developing a tractable growth model within finite industries. The aggregate economy in the model still follows the Kaldor facts, but the composition of the underlying industries changes endogenously over time. Each industry exhibits a hump-shaped lifecycle: as capital reaches a certain threshold level, a new industry appears, prospers, and then declines, to be gradually replaced by a more capital-intensive industry, ad infinitum. Analytical solutions are obtained to characterize the life cycle of each industry and the perpetual structural change.
Structural change; Industrial dynamics; Economic growth; Capital accumulation
Published on Journal of Monetary Economics 76 (2015) 244–263
Endowment structures, industrial dynamics, and economic growth.pdf