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Endogenous phase switch in Baumol's service paradox model

  • Sasaki, Hiroaki

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/525148

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  1. Nicholas Oulton, 2000. "Must the growth rate decline? Baumol's unbalanced growth revisited," Bank of England working papers 107, Bank of England.
  2. Spilimbergo, Antonio, 1998. "Deindustrialization and Trade," Review of International Economics, Wiley Blackwell, vol. 6(3), pages 450-60, August.
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  4. Notarangelo, Micaela, 1999. "Unbalanced growth: a case of structural dynamics," Structural Change and Economic Dynamics, Elsevier, vol. 10(2), pages 209-223, June.
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  8. Sasaki, Hiroaki, 2007. "The rise of service employment and its impact on aggregate productivity growth," Structural Change and Economic Dynamics, Elsevier, vol. 18(4), pages 438-459, December.
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  12. Maurizio Pugno, 2003. "The service paradox and endogenous economic growth," Department of Economics Working Papers 0301, Department of Economics, University of Trento, Italia.
  13. Jochen Hartwig, 2010. "Testing the growth effects of structural change," KOF Working papers 10-264, KOF Swiss Economic Institute, ETH Zurich.
  14. Barry P. Bosworth & Jack E. Triplett, 2007. "The Early 21st Century U.S. Productivity Expansion is Still in Services," International Productivity Monitor, Centre for the Study of Living Standards, vol. 14, pages 3-19, Spring.
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  18. Iscan Talan, 2010. "How Much Can Engel's Law and Baumol's Disease Explain the Rise of Service Employment in the United States?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-43, September.
  19. Foellmi, Reto & Zweimüller, Josef, 2008. "Structural change, Engel's consumption cycles and Kaldor's facts of economic growth," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1317-1328, October.
  20. Jochen Hartwig, 2008. "Has health capital formation cured ‘Baumol’s Disease’? – Panel Granger causality evidence for OECD countries," KOF Working papers 08-206, KOF Swiss Economic Institute, ETH Zurich.
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