DP3300 Structural Change and the Kaldor Facts of Economic Growth

Author(s): Reto Foellmi , Josef Zweimüller

Publication Date: April 2002

Keyword(s): demand externalities , Kaldor facts , balanced growth , structural change , innovation , hierarchic preferences , multiple equilibria

JEL(s): D91 , L16 , O11 , O31 , O40

Programme Areas: International Macroeconomics , Labour Economics

Link to this Page: www.cepr.org/pubs/dps/DP3300.asp

We present a model in which two of the most important features of the long-run growth process are reconciled: the massive changes in the structure of production and employment; and the Kaldor facts of economic growth. We assume that households expand their consumption along a hierarchy of needs and firms continuously introduce new products. In equilibrium industries with an expanding and those with a declining employment share co-exist, and each such industry goes (or has already gone) through a cycle of take-off, maturity, and stagnation. Nonetheless macroeconomic aggregates grow pari passu at a constant rate.