Technical Report The Structure of the Models of Structural Change and Kaldor's Facts: A Critical Survey

KUROSE, Kazuhiro

2015-10-05 , Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University
Although structural analysis was one of the central subjects in economics, its importance fell by the wayside, especially after aggregate macroeconomic growth models became popular in the 20th century. However, structural analysis has been revived recently and a new research agenda has emerged: to examine whether structural change can be reconciled with Kaldor's facts. This is an interesting agenda from both the theoretical and empirical point of view. Since Kaldor's facts are thought of as a sort of balanced growth path, this concept is extended so as to reconcile structural change with Kaldor's facts. In this study, we review the multi-sectoral models in which structural change can be reconciled with Kaldor's facts. We demonstrate that the common feature of all reviewed multi-sectoral models of structural change is that they are regarded as natural extensions of the one-sector model of growth and then somehow transformed into the one-sector model. However, we assert that it is not an adequate treatment of multi-sectoral models when structural change is focused. The transformation of multi-sectoral models into the one-sector model assumes a homogeneous capital but capital consists of heterogeneous commodities in modern capitalist economies. It reminds us of the lessen of the Cambridge capital controversies that the properties obtained by the one-sector model do not necessarily hold in multi-sectoral models when capital consists of heterogeneous commodities and the choice of techniques is allowed. From the empirical point of view, it is one of the important characteristics that the change in the composition of physical capital is systematically related to income growth. However, the models in which only homogeneous capital is included cannot focus on the characteristic. Whether or not structural change can be reconciled with Kaldor's facts in the models with heterogeneous capital is still an open question.

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