Business Cycle during Structural Change: Arthur Lewis' Theory from a Neoclassical Perspective

72 Pages Posted: 5 Sep 2019

See all articles by Kjetil Storesletten

Kjetil Storesletten

University of Oslo - Department of Economics; Centre for Economic Policy Research (CEPR)

Bo Zhao

Peking University

Fabrizio Zilibotti

University of Zurich; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: August 9, 2019

Abstract

We document that the nature of business cycles evolves over the process of development and structural change. In countries with large declining agricultural sectors, aggregate employment is uncorrelated with GDP.

During booms, employment in agriculture declines while labor productivity increases in agriculture more than in other sectors. We construct a unified theory of business cycles and structural change consistent with the stylized facts. The focal point of the theory is the simultaneous decline and modernization of agriculture. As capital accumulates, agriculture becomes increasingly capital intensive as modern agriculture crowds out traditional agriculture. Structural change accelerates in booms and slows down in recessions. We estimate the model and show that it accounts well for both the structural transformation and the business cycle fluctuations of China.

Keywords: Agriculture, Business Cycle, Capital Accumulation, China, Employment, Lewis, Modernization, Structural Change

JEL Classification: E32, O11, O13, O14, O41, O47, O53

Suggested Citation

Storesletten, Kjetil and Zhao, Bo and Zilibotti, Fabrizio, Business Cycle during Structural Change: Arthur Lewis' Theory from a Neoclassical Perspective (August 9, 2019). Cowles Foundation Discussion Paper No. 2191, August 2019, Available at SSRN: https://ssrn.com/abstract=3447532 or http://dx.doi.org/10.2139/ssrn.3447532

Kjetil Storesletten

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway
+47 2284 4009 (Phone)
+47 2285 5035 (Fax)

HOME PAGE: http://folk.uio.no/kjstore/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Bo Zhao

Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

Fabrizio Zilibotti (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
31
Abstract Views
204
PlumX Metrics