Year: 2021
Type: article
Abstract: We study the joint evolution of the sectoral composition and the investment rate of developing economies. Using panel data for several countries in different stages of development, we document three novel facts: (a) the share of industry and the investment rate are strongly correlated and follow a hump‐shaped profile with development, (b) investment goods contain more domestic value added from industry and less from services than consumption goods do, and (c) the evolution of the sectoral composition of investment and consumption goods differs from the one of GDP. We build a multi‐sector growth model to fit these patterns and provide two important results. First, the hump‐shaped evolution of investment demand explains half of the hump in industry with development. Second, asymmetric sectoral productivity growth helps explain the decline in the relative price of investment goods along the development path, which in turn increases capital accumulation and promotes growth.
Source: Econometrica
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
Funders: World Bank Group, Yale University, City University of New York, Cornell University, Fundación BBVA, Fundación Ramón Areces, Dartmouth College, Queen Mary University of London, London School of Economics and Political Science, Society for the Study of Evolution, Centre for Economic Policy Research, Universitat de València, Einaudi Institute for Economics and Finance, Universitat de Barcelona, Universidade Nova de Lisboa, Universidade de Vigo, Banco de España
OpenAlex ID: W2279750194