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A Technology-Gap Model of 'Premature' Deindustrialization

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  • Ippei Fujiwara
  • Kiminori Matsuyama

Abstract

We propose a parsimonious mechanism for generating premature deindustrialization (PD). In the baseline model, the Baumol effect drives the hump-shaped path of the manufacturing share. Countries follow different paths due to the difference in the sector-specific adoption lags. The condition for PD under which countries differ only in technology gap implies that the cross-country productivity dispersion is the largest in agriculture. Moreover, when calibrated to match Rodrik's (2016) findings, it is the smallest in manufacturing. In three extensions, we add the Engel effect, international trade, and catching up by late industrializers, to demonstrate the robustness of the mechanism.

Suggested Citation

  • Ippei Fujiwara & Kiminori Matsuyama, 2024. "A Technology-Gap Model of 'Premature' Deindustrialization," American Economic Review, American Economic Association, vol. 114(11), pages 3714-3745, November.
    • Handle: RePEc:aea:aecrev:v:114:y:2024:i:11:p:3714-45
    DOI: 10.1257/aer.20230133
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    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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