Abstract

Balanced growth models are commonly used in macroeconomics because they are consistent with the well-known Kaldor facts regarding economic growth. These models, however, are inconsistent with one of the most striking regularities of the growth process-the massive reallocation of labour from agriculture into manufacturing and services. This paper presents a simple model consistent with both the Kaldor facts and the dynamics of sectoral labour reallocation. Balanced growth models are widely used in macroeconomics because they are consistent with the well-known Kaldor facts regarding economic growth. Kaldor stressed that the growth rate of output, the capital-output ratio, the real interest rate, and the labour income share are all roughly constant over time. The constancy of these great ratios provides a good characterization of the long run behaviour of the U.S. economy.

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