A Technology-Gap Model of 'Premature' Deindustrialization

Ippei Fujiwara and Kiminori Matsuyama

American Economic Review, 2024, vol. 114, issue 11, 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.

JEL-codes: F11 L16 L60 O14 O33 (search for similar items in EconPapers)
Date: 2024
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Working Paper: A Technology-Gap Model of 'Premature' Deindustrialization (2022)
Working Paper: A Technology-Gap Model of Premature Deindustrialization (2022)
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DOI: 10.1257/aer.20230133

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