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Baumol versus Engel: Accounting for 100 years (1885-1985) of Structural Transformation in Japan

Author

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  • Fukao, Kyoji

    (Hitotsubashi University)

  • Paul, Saumik

    (Newcastle University)

Abstract

This paper examines the drivers of the long-run structural transformation in Japan. We use a dynamic input-output framework that decomposes the reallocation of the total output across sectors into two components: the Engel effect (demand side) and the Baumol effect (supply side). To perform this task, we employ 13 seven-sector input-output tables spanning 100 years (1885 to 1985). The results show that the Engel effect was the key explanatory factor in more than 60% of the sector-period cases in the pre-WWII period, while the Baumol effect drove structural transformation in more than 75% of such cases in the post-WWII period. Detailed decomposition results suggest that in most of the sectors (agriculture, commerce and services, food, textiles and transport, communication and utilities), changes in private consumption were the dominant force behind the demand-side explanations. The Engel effect was found to be the strongest in the commerce and services sector, which contributed to the rapid growth of GDP in Japan throughout the 20th century.

Suggested Citation

  • Fukao, Kyoji & Paul, Saumik, 2019. "Baumol versus Engel: Accounting for 100 years (1885-1985) of Structural Transformation in Japan," IZA Discussion Papers 12727, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp12727
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    References listed on IDEAS

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    1. Fukao, Kyoji & 深尾, 京司 & Paul, Saumik, 2017. "The Role of Structural Transformation in Regional Convergence in Japan: 1874-2008," SSPJ Discussion Paper Series DP17-001, Service Sector Productivity in Japan: Determinants and Policies, Institute of Economic Research, Hitotsubashi University.
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    More about this item

    Keywords

    Baumol's cost disease effect; the Engel effect; long-run structural transformation; sectoral productivity growth;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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