Multi-sector Endogenous Growth Model Research Articles

Network structure and economic growth

This paper develops a multisector endogenous growth model which embeds a technology network that captures heterogeneous intersectoral knowledge spillovers. We show that the growth rate of knowledge is equal to the dominant eigenvalue of the technology network. The structure of the technology network is crucial in determining the effect of knowledge spillover. Specifically, the sparsity of the technology network imposes an upper bound on the impact of knowledge spillovers, which then determines the growth rate at both the sectoral and aggregate level.

Labor-Saving Agricultural Technical Change and Industrial Development

The introduction of labor-saving technologies in agriculture can release workers who find occupation in the manufacturing sector. The traditional view is that this structural transformation process leads to economic growth. However, if workers leaving agriculture are unskilled, the labor reallocation process reinforces comparative advantage in the least skill-intensive manufacturing industries. We embed this mechanism in a multi-sector endogenous growth model where only skill-intensive manufacturing industries innovate and generate knowledge spillovers. In this setup, the increase in the relative size of the unskilled-labor intensive industries reduces the incentives to innovate and slows down growth. We test the predictions of the model in the context of a large and exogenous increase in agricultural productivity in Brazil. We use social security data to develop a new measure of the labor input in innovation which is representative at any level of spatial aggregation. We find that regions adopting the new agricultural technology experienced a reallocation of unskilled workers away from agriculture into the least R&D-intensive manufacturing industries. The expansion of low-R&D industries attracted workers away from innovative occupations in high-R&D industries, slowing down local aggregate manufacturing productivity growth.

A multi-sector growth model with technology diffusion and networks

This paper adds the standard input–output linkages into a multi-sector endogenous growth model to study the interaction effects between linkages and technology adoption for aggregate productivity and for income per capita. We show that the greater the intensity with which a good is used as input by other sectors, the smaller are the technology adoption lags and the greater is the technology adoption intensity, and thus the greater are the increases of the Total Factor Productivity and of economic growth. Therefore, distinct input–output relationships between sectors explain inter-country income differences. By using OECD data, we then estimate the model for nine developed countries and ten technologies, and confirm our theoretical findings.

The Inter-temporal Dimension to Knowledge Spillovers: Any Non-environmental Reason to Support Clean Innovation?

How should governments best allocate their budget to support private research activities? The consensus in the literature is that sector-specific R&D support policies should be increasing in the degree of compatibility of sectoral innovation with the practices of the wider economy. Using a multi-sector endogenous growth model with in-house R&D and knowledge spillovers, it is shown, that accounting for the time it takes for an innovation to diffuse modifies this widely-accepted result. Wide applicability of green innovations alone does not justify higher research subsidies.

Economic growth and labor market friction: a quantitative study on Japanese structural transformation

Abstract This paper develops a tractable multi-sector endogenous growth model with labor market friction and human capital accumulation to analyze the underlying link between economic growth and labor market institutions. The model, calibrated based on the Japanese structural transformation episodes, demonstrates that lifetime employment system has contributed to unprecedentedly rapid economic growth, by enhancing human capital accumulation and facilitating physical capital formation. The counterfactual experiment finds that had the job durations of a typical worker been 1 year (roughly one tenth of the actual average job duration) for 1960–1990 in the Japanese labor market, the non-agricultural GDP per capita in 1990 would have accounted for 71 percent of the actual values.

Government spending on education, human capital accumulation, and growth

The difference between social and private returns to education often provides the rationale for government intervention. We assess the growth implications of alternative methods of financing public spending on education in a small open economy. We develop a multisector endogenous growth model with human capital accumulation and consider several fiscal instruments to finance the increase in government spending: transfers to households, output, capital and labor taxes. We find a significant difference in the growth impact generated by the choice of the financing method. The non-distortionary financing method provides the highest output increase through its strong effect on physical and human capital stocks. The other distortionary financing methods have lower impacts on long-run economic growth, with labor tax being the most performing. Our simulation results also suggest that even though all methods of financing considered in this paper are growth-inducing in the long-run, their transitional impacts differ.

Trade liberalisation and innovation under sector heterogeneity

Mark-ups and the degree of trade openness vary substantially across sectors. This paper builds a multi-sector endogenous growth model to study the influence of trade liberalisation on innovation and, by extension, on sector and aggregate productivity growth under sectoral heterogeneity. I find that differences in the degree of competition generate substantial differences in firms' innovative responses to trade liberalisation. A movement from autarky to free trade promotes innovation and productivity growth in those sectors which are initially less competitive. This result is robust to an alternative scenario in which the economy is open to trade, but the degree of trade openness is common across sectors. Finally the paper outlines the importance of reallocation effects within sectors and across sectors that are the result of differences in product market competition across sectors. A movement towards zero trade costs has a smaller effect on aggregate innovation when the sectors are heterogeneous in terms of competition.

Economic Growth and Labor Market Institutions in East Asian Structural Transformation

This paper develops a tractable multi-sector endogenous growth model with labor market friction and human capital accumulation to analyze the underlying link between economic growth and labor market institutions. The model, calibrated based on the Japanese structural transformation episodes, demonstrates that lifetime employment system has contributed to unprecedentedly rapid economic growth, by enhancing human capital accumulation and facilitating physical capital formation. The counterfactual experiment finds that had the job durations of a typical worker been 1 year (roughly one tenth of the actual average job duration) for 1960-1990 in the Japanese labor market, the non-agricultural GDP per capita in 1990 would have accounted for 71 percent of the actual values.

Intangible capital and growth in the ‘new economy’: Implications of a multi-sector endogenous growth model

The high-technology, knowledge-based ‘new economy’ has contributed greatly to economic growth in recent years. The ‘new economy’ is underpinned by intangible capital and specialised business services. However, despite prevalent empirical evidence, theoretical appreciations of this structural change are sparse. This paper addresses the lacuna by examining the impact of intangible capital on economic growth. It extends the Uzawa–Lucas framework by incorporating a specific production sector for intangible capital and endogenises the human capital effort devoted to intangible capital production. The model provides a novel approach to the analysis of the ‘new economy’ and the impact of business services on growth. The model reveals that expansion of the intangible capital sector may enhance growth by drawing human capital from the other sectors. This possibility is especially relevant for countries where physical capital is relatively scarce. This has significant policy implications for developed as well as emerging economies.

Accounting for research and productivity growth across industries

What factors underlie industry differences in research intensity and productivity growth? We develop a multi-sector endogenous growth model allowing for industry-specific parameters in the production functions for output and knowledge, and in consumer preferences. We find that long run industry differences in both productivity growth and R&D intensity mainly reflect differences in “technological opportunities”, interpreted as the parameters of knowledge production. These include the capital intensity of R&D, knowledge spillovers, and diminishing returns to R&D. To investigate the quantitative importance of these factors, we calibrate the model using US industry data. We find that diminishing returns to research activity is the dominant factor.

Information and Communication Technologies in a Multi-Sector Endogenous Growth Model

This paper investigates the growth impact of Information and Communication Technologies (ICT) in an economy consisting of three sectors, ICT-producing, ICT-using and non-ICT-using. The ICT progress causes falling prices of the consumption and intermediates produced by the ICT-using sector, providing incentives for investment in the sectors using them. Therefore, the non-ICT-using sector benefits indirectly from ICT, while households' utility increases. The magnitude of the growth transmission mechanism relies on the ICT-using sector production shares. Aggregate economy is on a constant growth path, where growth rates differ across sectors. The model predictions are broadly consistent with the U.S. growth experience.

Information and Communication Technologies in a Multi-Sector Endogenous Growth Model

This paper investigates the impact of Information and Communication Technologies (ICT) on growth in an economy consisting of three main sectors, ICT-producing, ICT-using and non-ICT-using. The bene…ts from ICT come from the falling prices of the ICT-using sector’s good, which is used for the production of intermediate goods. Their falling prices provide incentives for investment for sectors using them, so the non-ICT-using sector experiences sustained growth driven by capital

Optimal balanced growth in a general multi-sector endogenous growth model with constant returns

I will study a multi-sector endogenous growth model with general constant returns to scale technologies and demonstrate the existence, uniqueness and the saddle-path stability of the balanced growth equilibrium. I will first demonstrate the existence of a balanced growth equilibrium, by showing that the balanced growth rate associated with the balanced growth equilibrium is solely determined by solving a Frobenius root problem of the price equations derived from the Euler equations and the property of the nonsubstitution theorem. Then I will show the saddle-path stability of the balanced growth equilibrium without any capital intensity conditions, which is a generalized property proved in the two-sector endogenous growth models by de Guevara et al. (J Econ Dyn Control 21, 115–143, 1997), Bond et al. (J Econ Theory 68, 149–173 1996) and Mino (Int Eco Rev 37, 227–251 1996). The theorem clearly implies that the balanced growth equilibrium has a transition path in the neighborhood of the balanced growth equilibrium.

How to substitute in order to sustain: knowledge driven growth under environmental restrictions

This paper presents different substitution mechanisms which determine, in a theoretical framework, the conditions for long-term sustainable development. In a one-sector approach and in two versions of a multi-sector endogenous growth model, the accumulation and the substitution of man-made inputs for natural resources are analysed. Assuming man-made capital to be an output of a specific sector of the economy, the elasticities of substitution between the different inputs play a more complex role than suggested by the one-sector approach. According to the multi-sector models, the prediction of growth becoming sustainable emerges as realistic, provided that the sectoral adjustment costs in the economy are not too high.