Structural Change and Non-Constant Biased Technical Change

Abstract

Empirical evidence suggests that the differences in rates of technical progress across sectors are time-variant, implying that the bias in technological change is not constant. In this paper, we analyze the implications of this non-constant sectoral biased technical change for structural change and we assess whether this is an important factor behind structural transformations. To this end, we develop a multi-sectoral growth model where TFP growth rates across sectors are non-constant. We calibrate our model to match the development of the U.S. economy during the twentieth century. Our findings show that, by assuming non-constant biased technical change, a purely technological approach is able to replicate the sectoral transformations in the U.S. economy not only after but also prior to the World War II.

Keywords: Multi-sector growth model, Structural change, Sector biased technical change, Baumol effect.

JEL Classification: O41, O47, O14, E29.