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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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    Cited by:

    1. Federico Huneeus & Richard Rogerson, 2020. "Heterogeneous Paths of Industrialization," NBER Working Papers 27580, National Bureau of Economic Research, Inc.
    2. Hirano, Tomohiro & Toda, Alexis Akira, 2024. "Bubble economics," Journal of Mathematical Economics, Elsevier, vol. 111(C).
    3. Aristizabal-Ramirez, Maria & Leahy, John & Tesar, Linda L., 2023. "A north-south model of structural change and growth," Journal of Monetary Economics, Elsevier, vol. 133(C), pages 77-102.
    4. Lar, Ni & Taguchi, Hiroyuki, 2023. "Premature deindustrialization or reindustrialization: The case of China’s latecomer provinces," MPRA Paper 118423, University Library of Munich, Germany.
    5. Taguchi, Hiroyuki, 2022. "Premature Deindustrialization Risk: The Case of Thailand," MPRA Paper 113560, University Library of Munich, Germany.
    6. Tomohiro Hirano & Alexis Akira Toda, 2023. "Unbalanced Growth, Elasticity of Substitution, and Land Overvaluation," CIGS Working Paper Series 23-014E, The Canon Institute for Global Studies.
    7. Tomohiro Hirano & Alexis Akira Toda, 2023. "Unbalanced Growth and Land Overvaluation," Papers 2307.00349, arXiv.org, revised Nov 2024.
    8. Duc Nguyen, 2022. "Heterogeneous Paths of Structural Transformation," Working Papers tecipa-742, University of Toronto, Department of Economics.
    9. Hagen Kruse & Emmanuel Mensah & Kunal Sen & Gaaitzen Vries, 2023. "A Manufacturing (Re)Naissance? Industrialization in the Developing World," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(2), pages 439-473, June.

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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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