The Distributional Impact of Sectoral Supply and Demand Shifts: A Unified Framework

Economies routinely experience a variety of sector-specific supply and demand shifts. Yet, the distributional welfare consequences of these shifts are not well understood. We address this gap by developing an analytical framework that jointly integrates supply-side and demand-side heterogeneity without imposing specific functional forms on consumption and production. This enables us to identify the key forces that shape the distributional welfare impact of sector-specific supply and demand shifts--in terms of consumer preferences and sectoral production functions. We estimate key parameters and quantify the heterogeneous welfare effects of sectoral shifts, revealing significant variation in their impact.