DP3300 Structural Change and the Kaldor Facts of Economic Growth

Author(s): Reto Foellmi, Josef Zweimüller
Publication Date: April 2002
Keyword(s): balanced growth, demand externalities, hierarchic preferences, innovation, Kaldor facts, multiple equilibria, structural change
JEL(s): D91, L16, O11, O31, O40
Programme Areas: International Macroeconomics, Labour Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3300

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.