STEG Working Paper Series

The Stable Transformation Path

Francisco Buera, Joseph P. Kaboski, Martí Mestieri, and Daniel O'Connor

TheStableTransformationPath.jpeg

Dynamic models of structural transformation are often non-stationary, precluding balanced growth path (BGP) analysis. We develop a generalization of the BGP concept that we call a Stable Transformation Path (STraP). The STraP characterizes the medium-term dynamics of the economy in a turnpike sense; it is the non-stationary path toward which the economy (quickly) converges from an arbitrary initial capital stock. Calibrated simulations demonstrate that these medium-term dynamics have important quantitative implications for structural transformation, investment, and growth, including slow convergence. Medium-term dynamics alone account for the observed 40% secular decline in average growth rates across stages of development.


This working paper is also available as CEPR Disucssion Paper 15351.

Related content

STEG Working Paper Series

Self-employment Within the Firm

Vittorio Bassi, Jung Hyuk Lee, Alessandra Peter, Tommaso Porzio, Ritwika Sen, Esau Tugume • Research Theme 1: Firms, Frictions and Spillovers, and Industrial Policy
STEG Working Paper Series

Worker Mobility in Production Networks

Marvin Cardoza, Francesco Grigoli, Nicola Pierri, Cian Ruane • Research Theme 1: Firms, Frictions and Spillovers, and Industrial Policy
STEG Working Paper Series

The Great Upgrade

Alexandros Ragoussis, Jonathan Timmis • Research Theme 1: Firms, Frictions and Spillovers, and Industrial Policy