Structural Change in Investment and Consumption - A Unified Analysis

Berthold Herrendorf, Richard Rogerson, Ákos Valentinyi

Research output: Contribution to journalArticlepeer-review

8 Scopus citations

Abstract

The structural-change literature typically assumes that investment is produced in manufacturing. We establish that this assumption is counterfactual: in the postwar U.S., the share of services value added in investment expenditure has been steadily growing. We develop a new model that features structural change in investment and consumption, characterize its equilibrium properties, and provide empirical support for it. We establish that modelling structural change in investment leads to three novel insights: constant TFP growth in all sectors is inconsistent with the existence of aggregate balanced growth with structural change; the sector with the slowest TFP growth absorbs all resources asymptotically; technical change is endogenously investment-biased.

Original languageEnglish (US)
Pages (from-to)1311-1346
Number of pages36
JournalReview of Economic Studies
Volume88
Issue number3
DOIs
StatePublished - May 1 2021

Keywords

  • Aggregate balanced growth
  • Investment
  • Investment-biased technical change
  • Structural change

ASJC Scopus subject areas

  • Economics and Econometrics

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