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Endogenous phase switch in Baumol's service paradox model

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  • Sasaki, Hiroaki
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    Abstract

    This 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 Info

    Article provided by Elsevier in its journal Structural Change and Economic Dynamics.

    Volume (Year): 23 (2012)
    Issue (Month): 1 ()
    Pages: 25-35

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    Handle: RePEc:eee:streco:v:23:y:2012:i:1:p:25-35

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    Web page: http://www.elsevier.com/locate/inca/525148

    Related research

    Keywords: Service paradox; Structural change; Endogenous productivity growth;

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