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Competition, Productivity Growth, and Structural Change

  • HORI Takeo
  • UCHINO Taisuke
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    Extending the endogenous growth model proposed by Young (1998), we construct a two-sector growth model that explains the observed pattern of structural change. Unlike existing studies, we assume neither non-homothetic preferences nor exogenous differential in productivity growth among different sectors. Our key assumption is that any two goods produced by firms in a sector are closer substitutes than those produced by firms in other sectors, which gives rise to an endogenous differential in productivity growth among different sectors. When the two composite goods are poor substitutes, the share of employment gradually shifts from the sector with a low markup to that with a high markup. To test the validity of the prediction of our model, we also estimate industry-level total factor productivity (TFP) growth and markup using Japanese firm-level panel data. The empirical results show a negative correlation between estimated markup and long-term TFP growth, and a positive correlation between the growth of industrial labor input and markup, which supports our theoretical results. Finally, in contrast to the previous studies of structural change that consider competitive economies, we study the socially optimal allocation and characterize the optimal tax policies.

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    Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 13041.

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    Length: 34 pages
    Date of creation: May 2013
    Date of revision:
    Handle: RePEc:eti:dpaper:13041
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    1. L. Rachel Ngai & Christopher A. Pissarides, 2007. "Structural Change in a Multisector Model of Growth," American Economic Review, American Economic Association, vol. 97(1), pages 429-443, March.
    2. KIYOTA Kozo, 2010. "Productivity, Markup, Scale Economies, and the Business Cycle: Estimates from firm-level panel data in Japan," Discussion papers 10040, Research Institute of Economy, Trade and Industry (RIETI).
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    8. Daron Acemoglu & Veronica Guerrieri, 2006. "Capital Deepening and Non-Balanced Economic Growth," NBER Working Papers 12475, National Bureau of Economic Research, Inc.
    9. Dolores Guilló, María & Papageorgiou, Chris & Perez-Sebastian, Fidel, 2011. "A unified theory of structural change," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1393-1404, September.
    10. Maroto-Sánchez, Andrés & Cuadrado-Roura, Juan R., 2009. "Is growth of services an obstacle to productivity growth? A comparative analysis," Structural Change and Economic Dynamics, Elsevier, vol. 20(4), pages 254-265, December.
    11. Dale W. Jorgenson & Marcel P. Timmer, 2011. "Structural Change in Advanced Nations: A New Set of Stylised Facts," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(1), pages 1-29, 03.
    12. Francisco J. Buera & Joseph P. Kaboski, 2009. "Can Traditional Theories of Structural Change Fit The Data?," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 469-477, 04-05.
    13. 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.
    14. 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.
    15. Jan Fagerberg, 2000. "Technological Progress, Structural Change and Productivity Growth: A Comparative Study," Working Papers 5, Centre for Technology, Innovation and Culture, University of Oslo.
    16. Nishimura, Kiyohiko G. & Nakajima, Takanobu & Kiyota, Kozo, 2005. "Does the natural selection mechanism still work in severe recessions?: Examination of the Japanese economy in the 1990s," Journal of Economic Behavior & Organization, Elsevier, vol. 58(1), pages 53-78, September.
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