Endowment Structures, Industrial Dynamics, and Economic Growth

This paper develops a dynamic general equilibrium model to explore industrial evolution and economic growth in a closed developing economy. The authors show that industries will endogenously upgrade toward the more capital-intensive ones as the capital endowment becomes more abundant. The model feat...

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Bibliographic Details
Main Authors:	Ju, Jiandong, Lin, Justin Yifu, Wang, Yong
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ADJUSTMENT POLICIES ADVANCED COUNTRIES AGGREGATE LEVEL AGGREGATE PRODUCTION FUNCTION AGRICULTURE ALLOCATION ALLOCATION OF CAPITAL BENCHMARK BUDGET CONSTRAINT CAPITAL ACCUMULATION CAPITAL ALLOCATION CAPITAL INTENSITIES CAPITAL INTENSITY CAPITAL LEVELS CAPITAL REQUIREMENT CAPITAL SHARE CAPITAL SHARES CAPITAL STOCK CAPITAL-LABOR CAPITAL-LABOR RATIO CAPITALISM CLOSED ECONOMY COMMODITIES COMMODITY COMPARATIVE ADVANTAGE COMPARATIVE ADVANTAGES CONSTANT RATE CONSTANT RETURNS CONSTANT RETURNS TO SCALE CONSUMERS CONSUMPTION GOODS DEMOCRACY DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPING ECONOMIES DEVELOPING ECONOMY DEVELOPMENT ECONOMICS DEVELOPMENT PATH DEVELOPMENT POLICIES DEVELOPMENT POLICY DEVELOPMENT STRATEGIES DEVELOPMENT STRATEGY DISCOUNT RATE DISTRIBUTION OF INCOME DOMESTIC MARKET DYNAMIC ANALYSIS DYNAMIC ECONOMY DYNAMIC MODEL ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC THEORY ELASTICITY ELASTICITY OF SUBSTITUTION EQUILIBRIUM EXPENDITURE EXTERNALITIES EXTERNALITY FACTION FULL EMPLOYMENT FUNCTIONAL FORMS FUTURE RESEARCH GDP GROWTH LITERATURE GROWTH MODEL GROWTH MODELS GROWTH PATH GROWTH RATE GROWTH RATES HUMAN CAPITAL INCOME INDUSTRIAL COUNTRIES INDUSTRIALIZATION INTANGIBLE INTERMEDIATE GOODS INTERNATIONAL BANK INTERNATIONAL INVESTMENT INTERNATIONAL TRADE INVESTMENT DECISIONS LOW-INCOME COUNTRY MACROECONOMIC POLICIES MACROECONOMICS MANUFACTURING INDUSTRIES MARGINAL UTILITY MODEL OF GROWTH MONOPOLY MULTIPLIERS NATURAL RESOURCES OPEN ECONOMIES OPEN ECONOMY OPTIMIZATION OUTPUT RATIO PER CAPITA INCOME POLITICAL ECONOMY PRODUCTION FUNCTION PRODUCTION FUNCTIONS PRODUCTION STRUCTURE PRODUCTION STRUCTURES PRODUCTIVITY PRODUCTIVITY GROWTH REAL INTEREST REAL INTEREST RATE RELATIVE PRICES RENTAL PRICE OF CAPITAL RETURN SAVINGS SECTOR MODEL SHARE OF LABOR SMALL ECONOMY SOCIAL DEVELOPMENT SOCIALISM SPECIALIZATION STATIC EQUILIBRIUM STRUCTURAL CHANGE SUSTAINABLE GROWTH TECHNOLOGICAL CHANGE TECHNOLOGICAL INNOVATION TECHNOLOGY TRANSFER TFP TOTAL CONSUMPTION TOTAL OUTPUT USE OF CAPITAL UTILITY FUNCTION WEALTH WEALTH OF NATIONS
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100727144037 http://hdl.handle.net/10986/4351

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Summary:	This paper develops a dynamic general equilibrium model to explore industrial evolution and economic growth in a closed developing economy. The authors show that industries will endogenously upgrade toward the more capital-intensive ones as the capital endowment becomes more abundant. The model features a continuous inverse-V-shaped pattern of industrial evolution driven by capital accumulation: As the capital endowment reaches a certain threshold, a new industry appears, prospers, then declines and finally disappears. While the industry is declining, a more capital-intensive industry appears and booms, ad infinitum. Explicit solutions are obtained to fully characterize the whole dynamics of perpetual structural change and economic growth. Implications for industrial policies are discussed.

Endowment Structures, Industrial Dynamics, and Economic Growth

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