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Investment Demand and Structural Change
Author(s) -
GarcíaSantana Manuel,
PijoanMas Josep,
Villacorta Lucciano
Publication year - 2021
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.3982/ecta16295
Subject(s) - investment (military) , economics , capital good , investment goods , gross fixed capital formation , consumption (sociology) , panel data , productivity , goods and services , monetary economics , fixed investment , capital (architecture) , gross private domestic investment , relative price , macroeconomics , market economy , capital formation , production (economics) , human capital , foreign direct investment , econometrics , open ended investment company , return on investment , social science , law , history , archaeology , sociology , financial capital , political science , politics
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.