DP15530 A Technology-Gap Model of Premature Deindustrialization

Author(s): Ippei Fujiwara, Kiminori Matsuyama
Publication Date: December 2020
Keyword(s): adoption lags, premature deindustrialization, sectoral productivity growth rate differences, structural change, technology gap
JEL(s): O11, O14, O33
Programme Areas: International Trade and Regional Economics, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15530

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.