Structural interactions and long run growth: An application of Experimental Design to Agent Based Models

We propose an agent-based computational model defining the following dimensions of structural change - organisation of production, technology of production, and product on the supply side, and income distribution and consumption patterns on the demand side - at the microeconomic level. We define ten different parameters to account for these five dimensions of structural change. Building on existing results we use a full factorial experimental design (DOE) to analyse the size and significance of the effect these parameters on output growth. We identify the aspects of structural change that have the strongest impact. We study the direct and indirect effects of the factors of structural change, and focus on the role of the interactions among the different factors and different aspects of structural change. We find that some aspects of structural change - income distribution, changes to production technology and the emergence of new sectors, - play a major role on output growth, while others -consumption shares, preferences, and the quality of goods, - play a rather minor role. Second, these major factors can radically modify the growth of an economy even when all other aspects experience no structural change. Third, different aspects of structural change strongly interact: the effect of a factor that influences a particular aspect of structural change varies radically for different degrees of structural change in other aspects. These results on the different aspects of structural change provide a number of insights on why regions starting from a similar level of output and with initial small differences grow so differently through time.