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‘Baumol'S Disease’, Production Externalities And Productivity Effects Of Intersectoral Transfers

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  • Claudio De Vincenti

Abstract

This paper presents a model that introduces in an unbalanced growth framework à la Baumol the hypothesis of an endogenous productivity growth due to a positive externality of the service sector on manufacturing productivity and a learning‐by‐doing process inside both sectors. The model shows that a policy aimed at keeping the ratio between outputs in the two sectors constant in real terms may improve the aggregate productivity performance of the economy, depending on the parameters' values. Then the model derives the dynamics of the intersectoral transfer which is necessary to keep the ratio between outputs constant, and verifies that the amount of the transfer turns out to be always lower than the output of the manufacturing sector, and only asymptotically approaches it.

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  • Claudio De Vincenti, 2007. "‘Baumol'S Disease’, Production Externalities And Productivity Effects Of Intersectoral Transfers," Metroeconomica, Wiley Blackwell, vol. 58(3), pages 396-412, July.
    • Handle: RePEc:bla:metroe:v:58:y:2007:i:3:p:396-412
    DOI: 10.1111/j.1467-999X.2007.00275.x
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    1. Hiroshi Nishi, 2016. "Sources and Consequences of Productivity Growth Dynamics: Is Japan Suffering from Baumol's Diseases?," Discussion papers e-16-003, Graduate School of Economics , Kyoto University.
    2. Hiroaki Sasaki, 2011. "Export of Deindustrialization and Anti-Balassa-Samuelson Effect: The Consequences of Productivity Growth Differential," Discussion papers e-10-015, Graduate School of Economics Project Center, Kyoto University.
    3. Sasaki, Hiroaki, 2012. "Endogenous phase switch in Baumol's service paradox model," Structural Change and Economic Dynamics, Elsevier, vol. 23(1), pages 25-35.
    4. Jianghuai Zheng & Lili Zhang & Yu Wang, 2011. "The underdevelopment of service industry in china: An empirical study of cities in Yangtze River Delta," Frontiers of Economics in China, Springer;Higher Education Press, vol. 6(3), pages 413-446, September.
    5. Hartwig, Jochen, 2012. "Testing the growth effects of structural change," Structural Change and Economic Dynamics, Elsevier, vol. 23(1), pages 11-24.
    6. Sasaki, Hiroaki, 2020. "Is growth declining in the service economy?," Structural Change and Economic Dynamics, Elsevier, vol. 53(C), pages 26-38.
    7. Borgersen, Trond-Arne & King, Roswitha M., 2015. "Endogenous supply side constraints to export-led growth and aggregate growth implications in transition economies," Structural Change and Economic Dynamics, Elsevier, vol. 33(C), pages 96-109.
    8. Zheng, Jianghuai & Zhang, Lili & Wang, Yu, 2010. "The underdevelopment of service industry in China: an empirical study of cities in Yangtze River Delta," MPRA Paper 33125, University Library of Munich, Germany, revised Jun 2011.

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