Is Growth Declining in the Service Economy?

Hiroaki Sasaki

Discussion papers from Graduate School of Economics Project Center, Kyoto University

Abstract: This study extends Baumol's (1967) two-sector (manufacturing and services) unbalanced growth model to analyze a situation in which, first, services are used for both final consumption and intermediate inputs into manufacturing production, and second, the productivities of the manufacturing and services sectors endogenously evolve. By using this model, we examine the conditions under which the employment share of services increases over time and investigate how the economic growth rate evolves as a result. Our results are summarized as follows. First, if the human capital accumulation function exhibits constant returns to scale with respect to per capita consumption of services, then we obtain a U-shaped relationship between the employment share of services and the economic growth rate. Second, if the human capital accumulation function exhibits decreasing returns to scale with respect to per capita consumption of services, the economic growth rate decreases first, begins to increase after some time, again decreases, and finally, approaches zero.

Keywords: service economy; economic growth; endogenous productivity growth; business services (search for similar items in EconPapers)
JEL-codes: J21 J24 O11 O14 O30 O41 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2014-09
New Economics Papers: this item is included in nep-exp
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Related works:
Journal Article: Is growth declining in the service economy? (2020)
Working Paper: Is Growth Declining in the Service Economy? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:kue:dpaper:e-14-007

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