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Endowment Structure, Industrial Dynamics, and Economic Growth

Authors Ju, Jiandong
Lin, Justin Yifu
Wang, Yong
Issue Date 2009-07
Summary This paper develops a dynamic general equilibrium model to explore industrial evolution and economic growth in a closed developing economy. We 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 nally disappears. While the industry is declining, a more capital-intensive industry appears and booms, ad in nitum. Explicit solutions are obtained to fully characterize the whole dynamics of perpetual structural change and economic growth. Implications for industrial policies are discussed.
Language English
Format Working paper
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