Structural change with dynamics of capital income share

This paper highlights a new fact about structural change by focusing on the dynamics of the capital income share at the sectoral level. That is, the capital income share in services decreases steadily while that in the manufacturing sector increases over time. I develop a two-sector growth model where capital intensity in each sector can change endogenously with capital deepening. The change in capital intensities further induces a reallocation of labor and capital across sectors.

► This paper highlights a new fact about structural change by focusing on the dynamics of capital income share across sectors. ► I develop a two-sector growth model where the capital intensity of each sector can change endogenously. ► The change of capital intensities further induces reallocations of labor and capital across sectors.