Kuznets meets Lucas: Structural Change and Human Capital
This paper develops a multi-sector growth model with human capital accumulation. In this model, human capital induces structural change through two channels: changes in relative prices due to differences in the strength of sectoral externalities, and changes in the investment rate of physical and human capital. We calibrate our model to match the development patterns of U.S. economy during the twentieth century. We show that the model explains i) structural change; ii) the differences between employment and value added shares across sectors; and iii) the path of human capital accumulation. We outline that imbalances between physical and human capital contribute to explain structural change as well as income differences across countries.