Estate Agent Local - A Directory Of UK Estate Agents

Industrial Structure

What determines industrial structure? Do sector-specific characteristics such as unionization, regulation, and trade policy dominate production patterns? One is inclined to believe so based on countless industry-level studies and the many political battles that are continually fought over trade and industrial policy. In contrast, standard neoclassical trade theory suggests that industrial structure is primarily driven by relative factor supplies. This paper demonstrates that aggregate factor endowments explain much of the structure of production---independent of industry idiosyncrasies---and quantifies the extent to which shifts in industrial structure in a cross section of countries are driven by the broad forces of factor accumulation. This result has important implications for policy. In particular, investment in physical capital and education may have as great an impact on the pattern of production as sector-specific trade and industrial policies. Thus, general equilibrium effects should not be ignored in efforts either to understand industrial structure or to form policies that attempt to alter it. These conclusions are reached through an empirical application of the factor proportions model of production.

The industrial structure of the economy and the distribution of value added across sectors is the result of long-term trends in sect oral growth, associated with the process of economic growth, in which productivity developments, the increase in the standard of living, the structure of demand - closely related to income per capita developments-, and international trade play an important role.

Looking at developments of broad sectors, the sect oral trends are characterized by the dynamism of market services, with growth rates higher than the economy as a whole, while all the other sectors lag the total economy, or track it closely. This uneven performance leads to a steady change of the sect oral distribution of value added among the main sectors of the economy, whereby services activities increase their share at the expense of all other sectors. More precisely, this change refers basically to market services, as non-market services also follow the path of the other sectors with below-average growth rates. It is important to note that this refers to sect oral growth rates relative to the total economy, but the below-average growth rates of, say, manufacturing, do not imply a decrease in the volume of manufacturing activity. On the contrary the volume of goods supplied by the manufacturing industry has continued to increase in the context of this deep change of the industrial structure. It is the increase in labor productivity which has made possible this steady growth in the supply of manufacturing goods, particularly in a context where jobs have gradually shifted towards services industries. These trends are consistent according to which different productivity developments in technologically progressive and non-progressive sectors make services’ relative prices higher. This, along with a higher income elasticity of demand for services, explains the fact that the share of services in total value added, in nominal terms, and in total employment increases over time.