The Determination and Development of Sectoral Structure

The development over time of sectors in terms of value added and employment has common characteristics in all economies. We develop a simple Ricardian multi-sector general equilibrium model that allows for (i) non-unitary income elasticities, (ii) different paces of technological progress per sector, and (iii) endogenously determined technological progress per sector. A model with these ingredients allows us to replicate the sectoral developments that are found empirically, and which are shown to be the outcome of an interplay between factors of demand and supply. Under reasonable assumptions, deindustrialization is shown to be a natural and unavoidable consequence of increases in the wealth of nations.