DEMAND BIAS AS AN EXPLANATION FOR STRUCTURAL-CHANGE

An income elastic demand for services is usually regarded as one of th e major explanations for the observed pattern of structural change in the world economy. Recent empirical findings cast some doubt on this d emand-bias hypothesis. This paper presents a simple model of structura l change that allows an assessment of the implications of alternative demand elasticities. The analysis focusses on restrictions for the set of consistent parameter values derived from demand theory. The result s show that lagging productivity growth in the service sector and a ho mothetic or income inelastic demand for services do not suffice to exp lain the stylized facts.