Productivity, Structural Change in Employment and Economic Growth

We develop an endogenous growth model with two sectors, manufacturing and non-manufacturing. The manufacturing sector is the source of the balanced productivity growth. We study how the economy responds to shifts in sector-specific productivity. Thus, when the sector-specific productivity in the manufacturing sector increases, we find that the fraction of labor employed in the manufacturing sector follows an inverted V curve, and that the growth rate increases. Thus, the model captures approximately the documented pattern of development for the share of manufacturing employment, a bell shape over time. When the sector-specific productivity in the non-manufacturing sector increases, the growth rate remains unchanged because the non-manufacturing sector is the non-learning sector.manufacturing sector, learning by doing, productivity, structural change, growth