Transitional Dynamics of Structural Changes

A simple three-factor, three-goods endogenous growth model with a Stone-Geary type utility function is utilized in order to analyze transitional dynamics of structural change. It is shown that sectoral contributions of respective industries to economic growth are variable and different, and that structural change in production and factor use favors the manufacturing industry as opposed to the agricultural industry during the transitional period. Theoretical results are calibrated, and compared with experiences of advanced countries in earlier periods. It is found that the simulation results are generally in accord with real economic data. In particular, the real interest rate and the ratio of investment to output are shown to be within reasonable ranges, which resolves the puzzles in neoclassical transitional dynamics raised by King and Rebelo.