Testing the growth effects of structural change

Against the backdrop of Baumol's model of ‘unbalanced growth’, a recent strand of literature has presented models that manage to reconcile structural change with Kaldor's ‘stylized fact’ of the relative constancy of per-capita real GDP growth. Another strand of literature goes beyond this, arguing that the expenditure shifts toward Baumol's ‘stagnant’ sector stimulate rather than dampen long-term economic growth because of the human capital-accumulating nature of major ‘stagnant’ services (like health care and education). This paper tests the relationship between structural change and economic growth empirically by means of a Granger-causality analysis of a panel of 18 OECD countries.     

Endogenous sector-biased technical change and perpetual and transient structural change

This paper provides a new definition of structural change and then categorizes such changes into two types. Transient structural change is related to the short-term adjustment of sectoral labor employment, while perpetual structural change concerns the long-run trends of labor reallocation among sectors. If we focus on supply-side reasons, we find that the one and only fundamental driving force of perpetual structural change is sector-biased technical change. We also investigate the structural parameters of the model that determine the direction of sector-biased technical change.     

On detectable and non-detectable structural change

A range of parameter changes in I(1) cointegrated time series are not reflected in econometric models thereof, in that many shifts are not easily detected by conventional tests. The breaks in question are changes that leave the unconditional expectations of the I(0) components unaltered. Thus, dynamics, adjustment speeds etc. may alter without detection. However, shifts in long-run means are generally noticeable. Using the VECM model class, the paper discusses such results, explains why they occur, and uses Monte Carlo experiments to illustrate the contrasting ease of detection of ‘deterministic’ and ‘stochastic’ shifts.     

Costly structural change and optimal growth

Summary This paper studies the optimal growth of a developing economy that has a choice to expend a fixed amount of resource for a structural change that advances its production technology. It is shown that structural change is undertaken if capital stock is above a critical level. Economies undertaking structural change converge to a larger steady state and economies not undertaking structural change converge to a smaller steady state. The optimal policy correspondences and growth paths are characterized. The social optimum is shown implementable by a competitive equilibrium with lump-sum taxation.We are grateful to Francis Cheung, Carmen Menezes, Peter Mueser, Don Schilling, two anonymous referees and an associate editor for their valuable suggestions.     

Assessing structural change: the case of Austria

In recent years in many OECD countries the view became popular that a country has a healthy industrial structure if it has a high share of high-tech industries and a low share of traditional industries like textiles and steel. Therefore, industrial policy in these countries introduces programmes for reallocating from traditional sectors to high-tech sectors in order to increase national welfare. This paper questions this view by taking into account recent insights of international trade theory and shows, in the case of Austria, why conventional concepts of measuring and assessing structural change (used, e.g. by the OECD) are misleading and thus lead to wrong conclusions in the assessment whether structural adjustment has gone in the ‘right’ direction. More specifically, the ‘popular’ criteria ‘share and shift’, ‘high-tech versus traditional products’, and ‘R & D intensity’ are discussed and an alternative interpretation suggested by economic theory is given. Additionally, the paper illustrates the alternatie interpretation of these popular criteria on the example of the textile industry which, as a traditional consumer goods industry, managed to modernize largely without R & D of its own and was able to meet international competition successfully.     

Mean adjustment and the CUSUM test for structural change

We show that the common practice of mean adjusting the data prior to regression and testing has serious implications for the null distribution of the CUSUM test for structural change.     

Crises and structural change in Australian agriculture

We present a model of structural change in the farming sector in which natural and economic crises decrease farmers’ work satisfaction, farm profitability, and the decision to stay in farming. Using data from the Australian Regional Well-being survey, activity choice modeling, and a structural equation approach, we test the hypothesis that these crises-induced effects then cause structural change in Australian agriculture. We find that external shocks, such as drought or economic downturn, negatively affect farmers’ welfare, which in turn causes structural change through revised activity choices. Our empirical findings also indicate that specific adjustment strategies such as buying additional water titles or reducing input use are insufficient to mitigate adverse crises effects.     

Quantile regression and structural change in the Italian wage equation

A test for structural break based on quantile regressions (QR) reveals the impact of a break in the tails of the conditional distribution, unveiling an opposite behavior in the tails that balances at the mean and that cannot be found using OLS. By repeatedly computing the QR test it is possible to check for stability of the coefficients both over time and with respect to dichotomies in the explanatory variables, such as generations or regions. This provides evidence of a break in earnings i) over time, with wages decreasing in the latest period; ii) across generations, where young workers experience a decrease in returns to education; and iii) across regions, with an opposite pattern of earnings, unstable at the lower quantiles in the southern regions and unstable at the higher wages in the north-center area.     

A new test for structural change

In this paper we are interested in detecting structural change at an unknown point. We argue that the CUSUM test may not ideal for this, and propose an alternative test. Critical values for this test are determined based on the multiple studentt test procedure. A Monte Carlo study suggests that the new test is quite powerful when the structural change occurs in the latter part of the sample. The new test also provides information about the location of structural change.     

Entrepreneurship, structural change, and economic growth

The ability to adjust to structural change is vital to economic development, and entries can be active participants in this process. While the importance of factor reallocations for growth is widely discussed, the role of entrepreneurs in managing these reallocations is currently not well understood. This paper analyzes the role of entry activity for adjustments of the sectoral structure and its relevance for regional economic development. The historical framework is the accelerated economic transformation that occurred in industrialized countries during the mid 1970s, resulting in an increasing need to adjust. Based on German data from 1975 to 2002, evidence is presented that sectoral reallocations are an important means for transforming entrepreneurial activity into growth.     

Dummy variables and predictive tests for structural change

We propose a dummy variable interpretation and an alternative proof of the predictive Chow test; we further show that it provides useful additional information on structural changes. We apply this approach to the St. Louis equation.     

An econometric test of structural change in the demographic transition

"The structural change model of the demographic transition developed by Easterlin and others is explored empirically by applying the Brown, Durbin and Evans test of structural change to annual data from the transitions of Sweden, Norway, England and Wales, and Finland. The evidence strongly supports the structural change model over traditional models (based on gradual changes in explanatory variables), indicating a supply response of fertility to declining illness and death during the early stages of transition, and a demand response to the death of children during the latter stages, when families are likely to have achieved desired size."     

The class of ban estimators of a single structural equation with structural change

Taking account of equality of structural variances in different samples, we characterize the class of BAN estimators of a single structural equation with structural change and propose an asymptotically efficient three-step estimator.     

Tests for structural change,aggregation, and homogeneity

Structural change can be considered by breaking up a sample into subsets and asking if these can be aggregated or pooled. Strategies for constructing tests for aggregation and structural change in this setting have not received sufficient attention in the literature. Our methodology for testing generalizes to multiple regimes a discussion of Pesaran et al. (1985) for the case of two regimes. This treatment permits a unified approach to a large number of testing problems discussed separately in the literature, as special cases or as parts of a test of homogeneity. We also provide a simple alternative to much more complex testing strategies currently being researched and developed in testing for structural change.     

Economic growth,structural change,and search unemployment

Economic growth is driven by structural change. Structural change does not come without a cost. The most evident social cost of structural change is high and persistent unemployment. This paper develops a model with an endogenously expanding service sector, where the constant flow of workers in and out of employment leads to structural unemployment. The main finding is that the level of unemployment is different between the initial period and the long-run equilibrium growth path, and that along the transition path, the level of unemployment will overshoot its equilibrium level, which can explain the long-run pattern of unemployment in most industrialized countries.      

The Chenery hypothesis and structural change in Eastern Europe

The Newly Liberalizing Countries (NLCs) in Eastern Europe have to undergo a fundamental structural change. In this paper the Chenery Hypothesis (CH) is employed to make a quantitative assessment of this change. The CH, roughly speaking, relates an economy's sectoral structure to its stage of development, its size, and its endowment with natural resources. The paper tests this hypothesis for a sample of 31 developed and developing economies and finds it still valid. Then it uses the results obtained to measure distortions in the NLCs' existing economic structure and to give a projection of future structural change. The calculations make it evident that the industrial sector in the NLCs will experience a marked downsizing whilst the service sector turns out to be too small. But sectoral patterns are not too uniform for all groups of countries. Thus, all projections depend highly on the reference group used to evaluate a ‘master pattern’.     

On studentizing a test for structural change

We show that the asymptotic null distribution of the CUSUM of squares test is not robust against deviations from normality, and propose a modification which overcomes this deficiency.