American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
A Technology-Gap Model of 'Premature' Deindustrialization
American Economic Review
vol. 114,
no. 11, November 2024
(pp. 3714–45)
Abstract
We propose a parsimonious mechanism for generating premature deindustrialization (PD). In the baseline model, the Baumol effect drives the hump-shaped path of the manufacturing share. Countries follow different paths due to the difference in the sector-specific adoption lags. The condition for PD under which countries differ only in technology gap implies that the cross-country productivity dispersion is the largest in agriculture. Moreover, when calibrated to match Rodrik's (2016) findings, it is the smallest in manufacturing. In three extensions, we add the Engel effect, international trade, and catching up by late industrializers, to demonstrate the robustness of the mechanism.Citation
Fujiwara, Ippei, and Kiminori Matsuyama. 2024. "A Technology-Gap Model of 'Premature' Deindustrialization." American Economic Review, 114 (11): 3714–45. DOI: 10.1257/aer.20230133Additional Materials
JEL Classification
- F11 Neoclassical Models of Trade
- L16 Industrial Organization and Macroeconomics: Industrial Structure and Structural Change; Industrial Price Indices
- L60 Industry Studies: Manufacturing: General
- O14 Industrialization; Manufacturing and Service Industries; Choice of Technology
- O33 Technological Change: Choices and Consequences; Diffusion Processes