The Econometric SocietyEdited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262
Econometrica: Nov, 2021, Volume 89, Issue 6
https://doi.org/10.3982/ECTA16295
p. 2751-2785
Manuel García‐Santana, Josep Pijoan‐Mas, Lucciano Villacorta
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.
This Online Appendix provides details on the data used in the paper (Appendix A), on our work with the WIOD (Appendix B), on the development regressions used to produce a stylized development process, (Appendix C), on the estimation details of the demand system (Appendix D.1), on the income elasticities implied by the estimated demand system (Appendix D.2), and on the estimation of some common restricted demand systems (Appendix D.3). In addition, there is a Web Appendix available from the authors web page with more details on the model (Appendix E) and on the shooting algorithm used to solve for the transitional dynamics (Appendix F).
This zip file contains the replication material for the manuscript and an additional online appendix that contains material not found within the manuscript.
