Lecture

Endogenous Structural Transformation in Economic Development - Justin Yifu Lin and Haipeng Xing

STEG Special Lecture 2020

Justin Yifu Lin (Professor of Economics, Peking University, and former Chief Economist, World Bank) and Haipeng Xing (Professor of Applied Mathematics and Statistics, Stony Brook University) present their paper, "Endogenous Structural Transformation in Economic Development".

This presentation was hosted by STEG as the 2020 lecture of the programme's Special Lecture Series. Accompanying paper is available here.

 

Abstract

This paper proposes a framework to model how a country develops its economy by endogenous structural transformation and efficient resource allocation in a market mechanism. To achieve this goal, the paper first summarizes three attributes of economic structures from the literature, namely, structurality, durationality, and transformality, and discuss their implications for methods of economic modeling. Then, with the common knowledge assumption, the paper studies a Ramsey growth model with endogenous structural transformation in which the social planner chooses the optimal industrial structure, recource allocation with the chosen structure, and consumption to maximize the representative household’s total utility subject to the resource constraint. The paper next establishes the mathematical underpinning of the static, dynamic, and structural equilibria. The Ramsey growth model and its equilibria are then extended to economies with complicated economic structures consisting of hierarchical production, composite consumption, technology adoption and innovation, infrastructure, and economic and political institutions. The paper concludes with a brief discussion of applications of the proposed methodology to economic development problems in other scenarios.

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