Essays on Structural Transformation

Abstract

The three chapters of this dissertation investigate major topics on structural transformation - reallocation of production across broad sectors of the economy. The first chapter investigates how substitutable are the demand for goods in the U.S. and its relationship to income elasticity. The second chapter studies the relationship between the reallocation of production and energy use in the United States. Lastly, the third chapter analyzes the structural transformation process of the Brazilian economy from 1950-2010. In Chapter 1, I study the importance of changes in income and relative prices for the consumption demand between agriculture, manufacturing and services goods in the U.S.. I use an (indirect) utility representation that takes the commonly used Stone-Geary preferences as special case and is able to generate persistent income effects. I find that a fairly low value of the substitution parameter, but sustained income effects. In Chapter 2, I study the role of structural transformation - from goods towards services - and of the increase in energy-saving productivity in the decline of carbon intensity (carbon emission per output) in the U.S. from 1950 to 2015. Because services require relatively less energy for production, shifts toward this sector decreases the necessary energy for production and, as consequence, less carbon per unit produced. Energy-saving productivity, on the other hand, reduces the necessary energy input for each unit of production. I use a multi-sector model to quantify the effects of energy-saving productivity in the economy. I find that in the absence of energy-saving productivity growth, aggregate consumption would be 6.2% lower than observed in 2015 and labor share in the goods sector 6.1% higher. In addition, I find that energy-saving productivity growth is responsible for 71.5% of the decline in carbon intensity (carbon emission per output) and structural transformation is of minor importance. I also use the model to evaluate the effects of implementing a per unit energy tax equal to the social cost of carbon provided by the Energy Information Agency. The tax decreases aggregate consumption by 3.5% and it increases the labor share in the goods sector by 1.61%. Finally, Chapter 3, jointly with Daniela Costa, examines the labor reallocation across agriculture, manufacturing and services, and their impacts on aggregate labor productivity in Brazil from 1950 to 2010. We use a multisector model that features nonhomothetic preferences and constant elasticity of substitution to decompose the drivers of the labor reallocation. For the entire 1950-2010 period, the income effect accounts for most of the reallocation of labor away from agriculture towards manufacturing and services. On the other hand, if we focus only in the 1980-2010 sub-period, the relative price change is now the main driver of the reallocation of labor, even though income effect is still quantitatively important. In addition, we explore two important aspects of the Brazilian economy: the fast growth of manufacturing productivity from 1950 to 1980 and its subsequent sluggish behavior, and the decline of services labor productivity after 1980. We find that the fast growth of manufacturing productivity between 1950 and 1980 is responsible for 15% of the aggregate productivity level in 1980. We also find that if services labor productivity had stayed constant at its 1980 level, aggregate labor productivity in 2010 would be 28% higher than observed.