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Aggregate Implications of Changing Sectoral Trends

Author

Listed:
  • Andrew T. Foerster
  • Andreas Hornstein
  • Pierre-Daniel G. Sarte
  • Mark W. Watson
Abstract
We find disparate trend variations in TFP and labor growth across major U.S. production sectors and study their implications for the post-war secular decline in GDP growth. We describe how capital accumulation and the network structure of U.S. production interact to amplify the effects of sectoral trend growth rates in TFP and labor on trend GDP growth. We derive expressions that conveniently summarize this long-run amplification effect by way of sectoral multipliers. These multipliers are quantitatively large and for some sectors exceed three times their value added shares. We estimate that sector-specific factors have historically accounted for approximately 3/4 of long-run changes in GDP growth, leaving common or aggregate factors to explain only 1/4 of those changes. Trend GDP growth fell by nearly 3 percentage points over the post-war period with the Construction sector alone contributing roughly 1 percentage point of that decline between 1950 and 1980. Idiosyncratic changes to trend growth in the Durable Goods sector then contributed an almost 2 percentage point decline in trend GDP growth between 2000 and 2018. Remarkably, no sector has contributed any steady significant increase to the trend growth rate of GDP in the past 70 years.

Suggested Citation

  • Andrew T. Foerster & Andreas Hornstein & Pierre-Daniel G. Sarte & Mark W. Watson, 2022. "Aggregate Implications of Changing Sectoral Trends," Working Paper Series 2019-16, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfwp:2019-16
    DOI: 10.24148/wp2019-16
    Note: The original version of this Working Paper was published May 14, 2019.
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    3. Lehmann, Robert & Wikman, Ida, 2022. "Quarterly GDP Estimates for the German States," MPRA Paper 112642, University Library of Munich, Germany.
    4. Paul Gaggl & Aspen Gorry & Christian vom Lehn, 2023. "Structural Change in Production Networks and Economic Growth," CESifo Working Paper Series 10460, CESifo.
    5. Julian di Giovanni & Andrei A. Levchenko & Isabelle Mejean, 2024. "Foreign Shocks as Granular Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 132(2), pages 391-433.
    6. Ruge-Murcia, Francisco, 2024. "Asset prices in a production network," European Economic Review, Elsevier, vol. 166(C).
    7. Christian vom Lehn & Thomas Winberry, 2022. "The Investment Network, Sectoral Comovement, and the Changing U.S. Business Cycle," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(1), pages 387-433.
    8. Pauline Affeldt & Tomaso Duso & Klaus Gugler & Joanna Piechucka, 2021. "Market Concentration in Europe: Evidence from Antitrust Markets," CESifo Working Paper Series 8866, CESifo.
    9. Fangzhi Wang & Hua Liao & Richard S. J. Tol, 2023. "Baumol's Climate Disease," Papers 2312.00160, arXiv.org.
    10. Falck, Elisabeth & Röhe, Oke & Strobel, Johannes, 2024. "Digital transformation and its impact on labour productivity: A multi-sector perspective," Discussion Papers 28/2024, Deutsche Bundesbank.
    11. Bunel, Simon & Bijnens, Gert & Botelho, Vasco & Falck, Elisabeth & Labhard, Vincent & Lamo, Ana & Röhe, Oke & Schroth, Joachim & Sellner, Richard & Strobel, Johannes & Anghel, Brindusa, 2024. "Digitalisation and productivity," Occasional Paper Series 339, European Central Bank.
    12. Christoph Gortz & Christopher Gunn & Thomas A. Lubik, 2024. "The Changing Nature of Technology Shocks," Working Paper 99119, Federal Reserve Bank of Richmond.
    13. De Graeve, Ferre & Schneider, Jan David, 2023. "Identifying sectoral shocks and their role in business cycles," Journal of Monetary Economics, Elsevier, vol. 140(C), pages 124-141.
    14. Matsumura, Kohei & Naka, Tomomi & Sudo, Nao, 2024. "Analysis of the transmission of carbon taxes using a multi-sector DSGE," Energy Economics, Elsevier, vol. 136(C).
    15. Zarges, Lara & Lehmann, Robert, 2024. "What Drives Trend German GDP Growth? A Disaggregated Sectoral View," VfS Annual Conference 2024 (Berlin): Upcoming Labor Market Challenges 302409, Verein für Socialpolitik / German Economic Association.
    16. Brad R. Humphreys & Scott Schuh & Corey J.M. Williams, "undated". "Learning by Doing, Productivity, and Growth: New Evidence on the Link between Micro and Macro Data," Working Papers 24-02, Department of Economics, West Virginia University.
    17. Fernández-Cerezo, Alejandro & Moral-Benito, Enrique & Quintana, Javier, 2024. "On the macroeconomic impact of NGEU funds and its propagation through the production network," Economic Modelling, Elsevier, vol. 132(C).

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    More about this item

    Keywords

    trend growth; sectoral linkages; investment network; growth accounting;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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