Endogenous phase switch in Baumol's service paradox model
AbstractThis paper develops a two-sector model that considers Baumol's service paradox. The paper simultaneously incorporates two ideas about technological progress in the model: (1) the consumption of services contributes to human capital accumulation and (2) the production of manufacturing leads to technological progress due to learning-by-doing. Accordingly, productivity growth in both services and manufacturing is endogenously determined. We show that initially, a shift in the employment share toward the services sector decreases the per capita real GDP growth rate, but at some point in time, the shift begins to increase the growth rate. Therefore, we observe an endogenous phase switch from a phase where the employment shift toward services depresses the economy to another where the employment shift promotes the economy.
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Bibliographic InfoArticle provided by Elsevier in its journal Structural Change and Economic Dynamics.
Volume (Year): 23 (2012)
Issue (Month): 1 ()
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Web page: http://www.elsevier.com/locate/inca/525148
Service paradox; Structural change; Endogenous productivity growth;
Find related papers by JEL classification:
- J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- O14 - Economic Development, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
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