Please enter verification code
Determining Whether the Chinese Services Industry Is Stagnant: An Empirical Test of Baumol’s Model
International Journal of Economics, Finance and Management Sciences
Volume 6, Issue 6, December 2018, Pages: 283-289
Received: Dec. 9, 2018; Published: Dec. 11, 2018
Views 818      Downloads 113
Zheng Dequan, Department of Public Administration, Harbin Institute of Technology, Harbin, China
Wang Enyan, Department of Information Management and System, Harbin Institute of Technology (Weihai), Weihai, China
Article Tools
Follow on us
The effects of increasing employment share of services on the real GDP growth have been investigated by a series of theoretical and empirical analysis for developed countries. In contrast, there are few empirical test studies of such effects on macro economies for developing countries. Baumol predicts that the increasing employment share of services will lower real GDP growth and thus productivity growth in services. Based on the extended Baumol’s model of two-sector unbalanced growth, this study provides an empirical analysis of the causes of employment shift and the impact of rising share of services on the productivity growth in China. Though the GDP share and the employment share of services has been increasing secularly for decades in China, the growth rate of labor productivity in services is slightly higher than that in manufacturing. The results have not confirmed the Baumol’ hypothesis because of the low labor productivity in manufacturing and large number of rural labor. The external shocks of demand for services show weak effect on the employment growth in services and are not significant. Furtherly, the regression analysis shows that there is the potential possibility of "cost disease" in China. This study empirically tests the impact of the rising services on the overall economy and can help to develop appropriate industrial policies for developing countries.
Service Economy, Baumol’s Model, Productivity Growth, Cost Disease
To cite this article
Zheng Dequan, Wang Enyan, Determining Whether the Chinese Services Industry Is Stagnant: An Empirical Test of Baumol’s Model, International Journal of Economics, Finance and Management Sciences. Vol. 6, No. 6, 2018, pp. 283-289. doi: 10.11648/j.ijefm.20180606.16
Baumol, W. J., Bowen, W., 1965. On the performing arts: the anatomy of their economic problems. The American Economic Review, 55(2): 495-502.
Baumol, W. J., 1967. Macroeconomics of unbalanced growth: the anatomy of urban crisis. The American Economic Review, 57 (3): 415–426.
Baumol, W. J., Blackman, S. A. B. and Wolff, E. N., 1985. Unbalanced growth revisited: asymptotic stagnancy and new evidence. The American Economic Review, 75(4): 806-817.
Hartwig, J., 2011. Can Baumol’s model of unbalanced growth contribute to explaining the secular rise in health care expenditure? an alternative test. Applied Economics, 43:173-184.
Ramón P., Francisco G. V. 2017. Structural change and productivity growth in Mexico, 1990–2014. Structural Change and Economic Dynamics, 41:53-63.
Baumol, W. J., Towse, R. (Eds.), 1997. Baumol’s Cost Disease: The Arts and Other Victims, Edward Elgar, Aldershot.
Sasaki, H., 2012. Endogenous phase switch in Baumol’s service paradox model. Structural Change and Economic Dynamics, 23: 25-35.
Albin, P., 1970. Poverty, Education, and Unbalanced Economic Growth. The Quarterly Journal of Economics, 84(1): 70-84.
Echevarria, C., 1997. Changes in sectoral composition associated with economic growth. International Economic Review, 38: 431-452.
Triplett, J. E. and Bosworth, B. P., 2003. Baumol's disease has been cured. Federal Reserve Bank of New York Economic Policy Review, 9: 23-33.
Nordhaus, W. D., 2008. Baumol’s diseases: a macroeconomic perspective. The B. E. Journal of Macroeconomics, 8: 1-37.
Haig, B., 1975. An analysis of changes in the distribution of employment between manufacturing and service industries, 1960-1970. The Review of Economics and Statistics, 57: 35-42.
Spann, R., 1977. The macroeconomics of unbalanced growth and the expanding public sector. Journal of Public Economics, 8:397-404.
Summers, R., 1985. Services in the international economy; Saxonhouse, G. Services in the Japanese economy; Leveson, I. Services in the U. S. economy. In Inman (eds.), Managing the Service Economy: Prospects and Problems. Cambridge University Press.
Solow, R. M., 1987. We’d better watch out. New York Times Book Review.
Sasaki, H., 2007. The rise of service employment and its impact on aggregate productivity growth. Structural Change and Economic Dynamics, 18 (4): 438–459.
Griliches, Z., 1992. Output measurement in the service sectors, NBER Studies in Income and Wealth, vol. 56, University of Chicago Press.
Pugno, M., 2006. The service paradox and endogenous economic growth. Structural Change and Economic Dynamics, 17 (1): 99–115.
De Vincenti, C., 2007. Baumol’s disease, production externalities and productivity effects of intersectoral transfers. Metroeconomica, 58 (3): 396–412.
Rafael F., Enrique P., 2018. Measuring the role of manufacturing in the productivity growth of the European economies (1993–2007). Structural Change and Economic Dynamics, 46: 1-12.
Gao, C. S. and Li, S. T., 2007. The paradox on services economy in China and the strategic choice for China to promote service economy. Economic Survey, 4:15-20.
Javier S., Frederick P., Jinhua Z., 2018. Worse than Baumol's disease: The implications of labor productivity, contracting out, and unionization on transit operation costs. Transport Policy, 61:10-16.
Jing, X. Q., 2011. Study about regional difference of services industry in China. Economic Management, 6: 36-43.
Cheng, D. Z., 2008. Is Chinese economy in the direction of tertiarization? Statistical Research, 25(9): 36-43.
Fuchs, V., 1968. The Service Economy, National Bureau of Economic Research.
Cheng, D. Z., 2010. Chinese services industries and economic growth. The Journal of World Economy, 10:25-42.
Mikael, M., Eva C., 2017. Potential Consequences on the Economy of Low or No Growth - Short and Long Term Perspectives. Ecological Economics, 134:57-64.
Science Publishing Group
1 Rockefeller Plaza,
10th and 11th Floors,
New York, NY 10020
Tel: (001)347-983-5186