Structural change, Engel's consumption cycles and Kaldor's facts of economic growth

Abstract

Non-linear Engel-curves for consumer goods cause continuous structural change. Goods are sequentially introduced starting out as a luxury with high income elasticity and ending up as a necessity with low income elasticity. Although this leads to rising and falling sectoral employment shares, the model exhibits a steady growth path along which the Kaldor facts are satisfied. Extending the basic model to the case of endogenous product innovations shows that complementarities between aggregate and sectoral growth may give rise to multiple equilibria.