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Title: A Technology-Gap Model of Premature Deindustrialization

Author(s): Ippei Fujiwara and Kiminori Matsuyama

Publication Date: December 2020

Keyword(s): adoption lags, premature deindustrialization, sectoral productivity growth rate differences, structural change and technology gap

Programme Area(s): International Trade and Regional Economics and Macroeconomics and Growth

Abstract: This paper presents a simple model of what Rodrik (2016) called "premature deindustrialization," the tendency that late industrializers reach their peaks of industrialization at lower levels of per capita income with the lower peak shares of manufacturing, compared to early industrializers. In this model, the hump-shaped path of the manufacturing share in each country is driven by the frontier technology whose productivity growth rate differs across the sectors. The countries are heterogenous in their "technology gaps," their capacity to adopt the frontier technology, which might affect adoption lags across sectors differently. In this setup, we show that premature deindustrialization occurs, for example, if adoption takes longer in the service sector, and yet the productivity growth rate in the service sector is sufficiently smaller such that cross-country productivity differences are smaller in the service sector.

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Bibliographic Reference

Fujiwara, I and Matsuyama, K. 2020. 'A Technology-Gap Model of Premature Deindustrialization'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15530