Endogenous Phase Switch in Baumol’s Service Paradox Model

Hiroaki Sasaki

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

Abstract: This paper develops a two-sector model that considers Baumol’s service paradox. The paper simultaneously incorporates two ideas about technological progress in the model: (1) the consumption of services contributes to human capital accumulation and (2) the production of manufacturing leads to technological progress due to learning-by-doing. Accordingly, productivity growth in both services and manufacturing is endogenously determined. We show that initially, a shift in the employment share toward the services sector decreases the per capita real GDP growth rate, but at some point in time, the shift begins to increase the growth rate. Therefore, we observe an endogenous phase switch from a phase where the employment shift toward services depresses the economy to another where the employment shift promotes the economy.

Keywords: service paradox; structural change; endogenous productivity growth (search for similar items in EconPapers)
JEL-codes: J21 J24 O11 O14 O30 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2010-12
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Related works:
Journal Article: Endogenous phase switch in Baumol's service paradox model (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:kue:dpaper:e-10-010

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