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Structural Change in an Open Economy
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Abstract
We develop a tractable, three-sector model to study structural change in an open
economy. The model features an endogenous pattern of trade dictated by comparative
advantage. We derive an intuitive expression linking sectoral employment shares to
sectoral expenditure shares and to sectoral net export shares of total GDP. Changes in
productivity and in trade barriers affect expenditure and net export shares, and thus,
employment shares, across sectors. We show how these driving forces can generate the "hump" pattern that characterizes the manufacturing employment share as a country
develops, even when manufacturing is the sector with the highest productivity growth.structural transformation, international trade, sectoral labor reallocation