A Two-Sector Model of Differential Productivity Growth with Quesnay-Baumol Effects: Japan-U.S. Comparisons, 1980–2020 (From the Post-oil Crisis to the Pre-COVID-19 Years)

This study examined how differentiated technical growth has affected overall growth in Japan and the U.S. A new feature of this work is introducing a structural aspect of the economy by dividing the economy into two sectors. We incorporated ideas developed first by Quesnay and later by Baumol into the two-sector analysis as “Quesnay-Baumol effects.” According to Quesnay’s insight, a sector with high technical progress will lead to high value-added growth. Baumol insists that the unit cost per output is stable in a progressive sector but rises in a nonprogressive sector. First, we theoretically constructed a new two-factor, two-sector neoclassical growth model that explains the Quesnay-Baumol effects. Although the equilibrium path for the system in general does not exist, we proved the existence of the equilibrium paths when assuming two types of special cases, such as Hicks-neutral and Harrod-neutral. Second, the Quesnay-Baumol effects were empirically tested using a total productivity analysis and other methods. We found the effects apparent in the U.S., but during Japan’s Lost Decades, the Quesnay effects were insignificant, which explains why Japan’s economy had serious problems.