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Baumol versus Engel: Accounting for 100 years (1885-1985) of Structural Transformation in Japan

Author

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  • Fukao, Kyoji
  • Paul, Saumik

Abstract

This paper examines the drivers of the long-run structural transformation in Japan. We use a dynamic input-output framework that decomposes the reallocation of the total output across sectors into two components: the Engel effect (demand side) and the Baumol effect (supply side). To perform this task, we employ 13 seven-sector input-output tables spanning 100 years (1885 to 1985). The results show that the Engel effect was the key explanatory factor in more than 60% of the sector-period cases in the pre-WWII period, while the Baumol effect drove structural transformation in more than 75% of such cases in the post-WWII period. Detailed decomposition results suggest that in most of the sectors (agriculture, commerce and services, food, textiles and transport, communication and utilities), changes in private consumption were the dominant force behind the demand-side explanations. The Engel effect was found to be the strongest in the commerce and services sector, which contributed to the rapid growth of GDP in Japan throughout the 20th century

Suggested Citation

  • Fukao, Kyoji & Paul, Saumik, 2019. "Baumol versus Engel: Accounting for 100 years (1885-1985) of Structural Transformation in Japan," Discussion Paper Series 694, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:hituec:694
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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/30374/1/DP694.pdf
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    References listed on IDEAS

    as
    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. Piyabha Kongsamut & Sergio Rebelo & Danyang Xie, 2001. "Beyond Balanced Growth," Review of Economic Studies, Oxford University Press, vol. 68(4), pages 869-882.
    3. Erik Dietzenbacher & Bart Los, 1998. "Structural Decomposition Techniques: Sense and Sensitivity," Economic Systems Research, Taylor & Francis Journals, vol. 10(4), pages 307-324.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    long-run structural transformation; the Engel effect; Baumol’s cost disease effect; sectoral productivity growth;

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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