Growth, sectoral composition, and the evolution of income levels

Jaime Alonso-Carrera (1) , Xavier Raurich (2)

1 Universidade de Vigo
2 Departament de Teoria Econòmica and CREB Universitat de Barcelona

We assert that the endowments of production factors cause cross-country differences in GDP by generating disparities in the sectoral composition. We characterize the dynamic equilibrium of a two-sector endogenous growth model with several consumption goods that are subject to minimum consumption requirements. In this model, economies with the same fundamentals but different endowments of capitals will end up growing at a common rate, although the long run sectoral composition of GDP will be different. Because the total factor productivity (TFP) in multisector models depends on sectoral structure, these differences in capital endowments will also generate sustained differences in TFPs.

Mots clés: Sectoral composition; Two-sector growth model; Minimum consumption; Total factor productivity

Domaines: Économie et finance quantitative [q-fin]

Jaime Alonso-Carrera, Xavier Raurich. Growth, sectoral composition, and the evolution of income levels. Journal of Economic Dynamics and Control, 2010, 34 (12), pp.2440. ⟨10.1016/j.jedc.2010.06.011⟩. ⟨hal-00743844⟩