Demand Bias as an Explanation for Structural Change.

An income elastic demand for services is usually regarded as one of the major explanations for the observed pattern of structural change in the world economy. Recent empirical findings cast some doubt on this demand-bias hypothesis. This paper presents a simple model of structural change that allows an assessment of the implications of alternative demand elasticities. The results show that lagging productivity growth in the service sector and a homothetic or income inelastic demand for services do not suffice to explain the stylized facts. Copyright 1994 by WWZ and Helbing & Lichtenhahn Verlag AG