MACRO: Structural Change in Production Networks and Economic Growth; Professor Aspen Gorry (Clemson University)
Abstract
We study structural change in production networks for intermediate inputs (input-output net- work) and new capital (investment network). For each network, we document that the share of output produced by goods sectors has declined since the 1950s, offset by a rising fraction of production by ser- vices sectors. We develop a multi-sector growth model to study these trends and show that our framework admits an aggregate balanced growth path with such structural change. Calibrating the model using disag- gregated expenditure-side price data for the United States, we find that inputs to intermediates production are complements. However, in contrast to existing literature, we find that inputs to investment production are substitutes. Hence, structural change in production networks implies that resources endogenously real- locate to the slowest growing intermediates producers and the fastest growing investment producers. As a result, we show that investment-specific technical change accounts for an increasing share of U.S. aggregate growth, rising from 30-40% of growth prior to the 1980s to more than 70% since the year 2000. In addition, more than 20% of aggregate growth after 2000 stems from endogenous reallocation induced by structural change. At the same time, productivity growth within the input-output network has stagnated, accounting for the bulk of the recent slowdown in aggregate growth.
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