Structural Change in an Open Economy

61 Pages Posted: 5 Sep 2013

See all articles by Timothy Lim Uy

Timothy Lim Uy

University of Minnesota - Minneapolis

Kei-Mu Yi

University of Houston - Department of Economics; Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Jing Zhang

University of Michigan at Ann Arbor

Date Written: August 2013

Abstract

We study the importance of international trade in structural change. Our framework has both productivity and trade cost shocks, and allows for non-unitary income and substitution elasticities. We calibrate our model to investigate South Korea's structural change between 1971 and 2005. We find that the shock processes, propagated through the model's two main transmission mechanisms, non-homothetic preferences and the open economy, explain virtually all of the evolution of agriculture and services labor shares, and the rising part of the hump-shape in manufacturing. Counterfactual exercises show that the role of the open economy is quantitatively important for explaining South Korea's structural change.

Keywords: structural transformation, international trade, sectoral labor reallocation

JEL Classification: F20, F40, O13, O41

Suggested Citation

Uy, Timothy Lim and Yi, Kei-Mu and Zhang, Jing, Structural Change in an Open Economy (August 2013). FRB of Chicago Working Paper No. 2013-09. Available at SSRN: https://ssrn.com/abstract=2320644 or http://dx.doi.org/10.2139/ssrn.2320644

Timothy Lim Uy

University of Minnesota - Minneapolis ( email )

110 Wulling Hall, 86 Pleasant St, S.E.
308 Harvard Street SE
Minneapolis, MN 55455
United States

Kei-Mu Yi

University of Houston - Department of Economics

Houston, TX 77204-5882
United States

Federal Reserve Banks - Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

Jing Zhang (Contact Author)

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

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