Document Type
Discussion Paper
Publication Date
8-1-2019
CFDP Number
2191
CFDP Pages
72
Journal of Economic Literature (JEL) Code(s)
E32, O11, O13, O14, O41, O47, O53
Abstract
We document that the nature of business cycles evolves over the process of development and structural change. In countries with large declining agricultural sectors, aggregate employment is uncorrelated with GDP. During booms, employment in agriculture declines while labor productivity increases in agriculture more than in other sectors. We construct a unified theory of business cycles and structural change consistent with the stylized facts. The focal point of the theory is the simultaneous decline and modernization of agriculture. As capital accumulates, agriculture becomes increasingly capital intensive as modern agriculture crowds out traditional agriculture. Structural change accelerates in booms and slows down in recessions. We estimate the model and show that it accounts well for both the structural transformation and the business cycle fluctuations of China.
Recommended Citation
Storesletten, Kjetil; Zhao, Bo; and Zilibotti, Fabrizio, "Business Cycle during Structural Change: Arthur Lewis' Theory from a Neoclassical Perspective" (2019). Cowles Foundation Discussion Papers. 61.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/61