Abstract
A dynamic long‐run general equilibrium framework based on a structural vector error correction model is used to study the factors determining the structural transformation of the Australian economy from 1960 to 2020. Three sets of shocks are identified: demand shocks through aggregate consumption, supply shocks caused by changes in relative prices across industries, and shocks arising from deviations between observed and long‐run industry employment shares. The empirical results highlight the importance of all shocks in causing the structural transformation of the Australian economy across industries and over time. The results are found to be robust to a range of sensitivity experiments.
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