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Discussion Paper Details

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Title: Endogenous Sector-Biased Technological Change and Industrial Policy

Author(s): Berthold Herrendorf and Akos Valentinyi

Publication Date: October 2015

Keyword(s): endogenous sector-biased technological change, horizontal innovation, industrial policy and structural transformation

Programme Area(s): Macroeconomics and Growth

Abstract: We build a model of structural transformation with endogenous sector-biased technological change. We show that if the return to specialisation is larger in the goods sector than in the service sector, then the equilibrium has the following properties: aggregate growth is balanced; structural transformation takes place from goods to services; the service sector receives more innovation but the goods sector has more productivity growth. We show that compared to the efficient allocation the laissez-faire equilibrium has too much labor in the goods sector. This suggests that optimal industrial policy should aim to increase the pace of structural transformation.

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Bibliographic Reference

Herrendorf, B and Valentinyi, A. 2015. 'Endogenous Sector-Biased Technological Change and Industrial Policy'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10869