Impacts of Intermediate Trade on Structural Change

Abstract

Traditional structural change theories study the dynamics of inter-sector labour-reallocation in autarky models. We analyse how model-results change if open economy setting is assumed, where we focus on the impacts of intermediate trade in a multi-sector growth model with capital accumulation. We show that, when controlling for specialisation-effects, open economy features a relatively high employment share of capital/manufacturing sector and a relatively low rate of labour-reallocation across consumption industries in comparison to autarky. The process of tertiarisation (transition to a services economy) is relatively slow in the intermediate trade model in comparison to the autarky model.

Keywords: structural change, factor reallocation, labour, multi-sector growth modelling, neoclassical growth theory, trade, intermediates, offshoring

JEL Classification: F16, F43, O14, O41