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The Stable Transformation Path

Author

Listed:
  • Buera, Francisco
  • Kaboski, Joseph
  • Mestieri, Marti
  • O'Connor, Daniel
Abstract
Standard dynamic models of structural transformation, without knife-edge and counterfactual parameter values, preclude balanced growth path (BGP) analysis. This paper develops a dynamic equilibrium concept for a more general class of models --- an alternative to a BGP, which we coin a Stable Transformation Path (STraP). The STraP characterizes the medium-term dynamics of the economy in a turnpike sense; it is the path toward which the economy (quickly) converges from an arbitrary initial capital stock. Calibrated simulations demonstrate that the relaxed parameter values that the STraP allows have important quantitative implications for structural transformation, investment, and growth. Indeed, analyzing the dynamics along the STraP, we show that the modern dynamic model of structural transformation makes progress over the Neoclassical growth model in matching key growth and capital accumulation patterns in cross-country data, including slow convergence.

Suggested Citation

  • Buera, Francisco & Kaboski, Joseph & Mestieri, Marti & O'Connor, Daniel, 2022. "The Stable Transformation Path," CEPR Discussion Papers 15351, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15351
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    Cited by:

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    3. Hassler, John & Krusell, Per & Olovsson, Conny, 2022. "Finite resources and the world economy," Journal of International Economics, Elsevier, vol. 136(C).
    4. Gillman, Max, 2021. "Steps in industrial development through human capital deepening," Economic Modelling, Elsevier, vol. 99(C).

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    More about this item

    Keywords

    Growth; Investment dynamics; Non-balanced growth;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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