Working papers
Working papers
This paper presents a theory of how early childhood development shapes structural change. I document two novel cross-country facts: parental time devoted to young children (ages 0--4) and early childhood human capital outcomes both rise with economic development, alongside the rising employment share of High-Skill Services. I construct a heterogeneous agents general equilibrium model that embeds a multi-stage human capital technology with dynamic complementarity into a structural change model with non-homothetic preferences and unbalanced sectoral TFP growth. Through dynamic complementarity, higher early childhood human capital generates a more skilled workforce, which raises both the supply of and demand for High-Skill Services. The model matches patterns of time use, structural change, and the skill distribution in the postwar US. I show that dynamic complementarity accounts for 33.1% of US structural change toward High-Skill Services in general equilibrium. The result suggests that skill formation in early childhood matters for the sectoral composition of modern economies.
Awards:
Best Poster Award in the Doctoral Training in Structural Change, Growth and Economic Development Poster Session (University of Glasgow)
with Juan I. Vizcaino
We study how structural change shapes aggregate productivity through the allocation of production and innovation. Using U.S. data, we document that production employment moves from Goods toward non-research-intensive Services, while research employment moves predominantly toward research-intensive Services. We develop a general equilibrium model in which sectoral composition, capital deepening, and directed innovation are jointly determined, with heterogeneous markups and cross-sector knowledge spillovers. Holding initial value added shares fixed while retaining baseline sectoral productivity paths raises average annual aggregate productivity growth by 0.13 percentage points over 1950-2023. Removing the forces driving changes in value added shares and re-solving the equilibrium raises growth by 0.37 percentage points, leaving productivity approximately 31 percent higher in 2023. An exact decomposition attributes 62 percent of this growth difference to the endogenous response of sectoral productivity. Innovation provides the largest positive contribution: sustaining the Goods sector's market share supports research and idea accumulation, reinforced by its reliance on its own knowledge stock. These findings show that the productivity consequences of structural change depend on both the reallocation of production and the innovation incentives generated by that reallocation.
Premature deindustrialisation suggests that services will play an increasingly pivotal role in driving the long-run growth trajectory of developing countries. This paper documents three new facts on productivity growth in services. First, the variance of services productivity growth is higher in developing countries than advanced ones. Second, services productivity growth (or lack thereof) is driven by broad-based improvements (deteriorations) across the different services sub-sectors (`within' channel) as opposed to sub-sector reallocations of employment to more productive services industries (`between' channel). Third, the `within' channel's effect is partly driven by conditional convergence in services productivity between countries. Combined, these facts motivate a theoretical framework where, like the one-sector neoclassical growth model, the social planner faces a standard consumption-investment trade-off. Differently from the benchmark model however, the planner faces an additional static problem which involves allocating investment between two competing technologies. The first is a catch-up technology while the second is a CRS technology. The gains of the former depend on the level of development that is, the further away from the frontier the higher the returns. Crucially, a country-specific growth efficiency parameter interacts solely with the catch-up technology, scaling the marginal gains from this allocation. Productivity growth in the transitional dynamics therefore depends on three factors: the distance to the frontier, the investment rate and the growth efficiency level. Using the World Input-Output Database (WIOD), I calibrate the growth efficiency level to match the 2000-2005 compound annual growth rate of services value added per worker. The calibration outcomes are used for several quantitative exercises, including a variance decomposition of productivity growth in services as well as two counterfactual exercises. A key result of the paper is that assigning sample maximum growth efficiency levels and investment rates raises average growth among developing countries from an observed 3.6% to a counterfactual rate of 18.7%, closing 86.7% of the gap between observed average growth and the maximum potential growth rate.
with Juan I. Vizcaino
We study the optimal allocation of research across sectors in an economy undergoing structural change. In a three-sector growth model with directed technical change, non-homothetic demand, heterogeneous markups, and knowledge spillovers, the private value of a patent differs from its social value for three reasons: innovators do not fully appropriate the gains their patents generate; they fully ignore the knowledge spillovers they create, within and across sectors; and free entry into research ignores congestion. We characterize the gap as a decomposition of the ratio between the planner's shadow value and the market value of a patent, and we quantify it in a model calibrated to US sectoral data. Appropriability and spillovers push the private return below the social return, while congestion pushes it above, so the sign and size of the gap vary across sectors. Spillovers are strongest in goods, and the optimal allocation shifts research toward that sector. Because sectoral outputs are complements, this reallocation lowers the relative price of goods and moves expenditure further toward services, so the optimum raises the measured Baumol drag on aggregate productivity growth while raising welfare. We use the model to compare the optimal sector-specific research subsidy with a sector-neutral subsidy, as in current US policy.