Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Richmond
Working Paper
Aggregate Implications of Changing Sectoral Trends
Andrew Foerster
Andreas Hornstein
Pierre-Daniel G. Sarte
Mark W. Watson
Abstract

We find disparate trend variation in TFP and labor growth across major U.S. production sectors over the post-WWII period. When aggregated, these sector-specific trends imply secular declines in the growth rate of aggregate labor and TFP. We embed this sectoral trend variation into a dynamic multi-sector framework in which materials and capital used in each sector are produced by other sectors. The presence of capital induces important network effects from production linkages that amplify the consequences of changing sectoral trends on GDP growth. Thus, in some sectors, changes in TFP and labor growth lead to changes in GDP growth that may be as large as three times these sectors' share in the economy. We find that trend GDP growth has declined by more than 2 percentage points since 1950, and that this decline has been primarily shaped by sector-specific rather than aggregate factors. Sustained contractions in growth specific to Construction, Nondurable Goods, and Professional and Business and Services make up close to sixty percent of the estimated trend decrease in GDP growth. In addition, the slow process of capital accumulation means that structural changes have endogenously persistent effects. We estimate that trend GDP growth will continue to decline for the next 10 years absent persistent increases in TFP and labor growth.


Download Full text
Cite this item
Andrew Foerster & Andreas Hornstein & Pierre-Daniel G. Sarte & Mark W. Watson, Aggregate Implications of Changing Sectoral Trends, Federal Reserve Bank of Richmond, Working Paper 19-11, 28 May 2019.
More from this series
JEL Classification:
Subject headings:
Keywords: trend growth; multi-sector model; production linkages
For corrections, contact Christian Pascasio ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal