Practice Job Talk - Hang Hu (The University of Melbourne)

Title: Structural Change with Endogenous Input-Output Linkages

Abstract: Do sectoral reallocations of value-added depend on input-output linkages? This paper proposes a new mechanism for structural change through outsourcing of intermediate-inputs (I-I). I build a multi-sector general equilibrium model, featuring endogenous input-output linkages, nonhomothetic CES preferences and technology, and heterogeneous firms. As relative outsourcing cost changes, sectors which demand external outsourcing (I-I demand) shed labor, while sectors which supply external outsourcing (I-I supply) absorb labor. The model is structurally calibrated using panel data from 35 major economies during 1995-2007. The quantitative results suggest that (i) I-I supply effects are at least comparable to mechanisms in the literature, such as price effects due to sector-biased technological change; (ii) I-I demand effects are less critical due to stable I-I demand intensity; (iii) about half of the structural change attributes to rising comparative advantage of supplying I-I by services relative to by manufacturing.