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‘BAUMOL'S DISEASE’, PRODUCTION EXTERNALITIES AND PRODUCTIVITY EFFECTS OF INTERSECTORAL TRANSFERS
Author(s) -
De Vincenti Claudio
Publication year - 2007
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/j.1467-999x.2007.00275.x
Subject(s) - productivity , economics , externality , endogenous growth theory , production (economics) , constant (computer programming) , microeconomics , manufacturing sector , productivity model , macroeconomics , total factor productivity , market economy , computer science , programming language , human capital
This paper presents a model that introduces in an unbalanced growth framework à la Baumol the hypothesis of an endogenous productivity growth due to a positive externality of the service sector on manufacturing productivity and a learning‐by‐doing process inside both sectors. The model shows that a policy aimed at keeping the ratio between outputs in the two sectors constant in real terms may improve the aggregate productivity performance of the economy, depending on the parameters' values. Then the model derives the dynamics of the intersectoral transfer which is necessary to keep the ratio between outputs constant, and verifies that the amount of the transfer turns out to be always lower than the output of the manufacturing sector, and only asymptotically approaches it.