Endowment structures, industrial dynamics, and economic growth

Motivated by four stylized facts about industry dynamics, we propose a theory of endowment-driven structural change by developing a tractable growth model with infinite industries. The aggregate economy in the model still follows the Kaldor facts, but the composition of the underlying industries changes endogenously over time. Each industry exhibits a hump-shaped life cycle: as capital reaches a certain threshold level, a new industry appears, prospers, and then declines, to be gradually replaced by a more capital-intensive industry, ad infinitum. Analytical solutions are obtained to characterize the life cycle of each industry and the perpetual structural change. •Stylized facts about high-digit industrial dynamics are established to motivate the theory.•An endogenous growth model with infinite industries is developed to explain the stylized facts.•We propose a new mechanism to drive structural change: capital accumulation.•Closed-form solutions are obtained to fully characterize the hump-shaped life cycle dynamics.•Perpetual structural changes of industries are beneath the constant aggregate growth path.