Volume 6, Issue 6, December 2018, Page: 283-289
Determining Whether the Chinese Services Industry Is Stagnant: An Empirical Test of Baumol’s Model
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
Received: Dec. 9, 2018;       Published: Dec. 11, 2018
DOI: 10.11648/j.ijefm.20180606.16      View  187      Downloads  39
Abstract
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.
Keywords
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
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