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.