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American Economic Review: Vol. 103 No. 7 (December 2013)

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Two Perspectives on Preferences and Structural Transformation

Article Citation

Herrendorf, Berthold, Richard Rogerson, and Ákos Valentinyi. 2013. "Two Perspectives on Preferences and Structural Transformation." American Economic Review, 103(7): 2752-89.

DOI: 10.1257/aer.103.7.2752

Abstract

We assess the empirical importance of changes in income and relative prices for structural transformation in the postwar United States. We explain two natural approaches to the data: sectors may be categories of final expenditure or value added; e.g., the service sector may be the final expenditure on services or the value added from service industries. We estimate preferences for each approach and find that with final expenditure income effects are the dominant force behind structural transformation, whereas with value-added categories price effects are more important. We show how the inputoutput structure of the United States can reconcile these findings.

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Authors

Herrendorf, Berthold (AZ State U)
Rogerson, Richard (Princeton U)
Valentinyi, Ákos (Cardiff U and Institute of Economics, Hungarian Academy of Sciences)

JEL Classifications

E21: Macroeconomics: Consumption; Saving; Wealth
L16: Industrial Organization and Macroeconomics: Industrial Structure and Structural Change; Industrial Price Indices


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