Capital Accumulation and Structural Change in a Small Open Economy

Pacific Economic Review, 2014, vol. 19, issue 5, 634-656

Abstract: This paper explores the relation between capital accumulation and transformation of industrial structure in a small open economy. Using a three-sector neoclassical growth model with non-homothetic preferences, we examine the dynamic behaviour of the small country in the alternative trade regimes. We show that capital accumulation plays a leading role in the process of structural transformation. It is also revealed that the trade pattern significantly affects structural change. We demonstrate that our model can mimic a typical pattern of change in industrial structure that has been observed in many developed economies.

Date: 2014
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