Must the growth rate decline? Baumol's unbalanced growth revisited
AbstractAccording to Baumol's model of unbalanced growth, if resources are shifting towards industries where productivity is growing relatively slowly, the aggregate productivity growth rate will slow down. This conclusion is often applied to the advanced industrial economies, where resources are indeed shifting towards the relatively stagnant service industries. This paper shows that Baumol's conclusion only follows if the stagnant industries produce final products. This is important empirically, since the most rapidly expanding service industries are those such as financial and business services, which are large producers of intermediate products. Even if such industries are stagnant, it is shown that a movement of resources into them may be associated with rising, not falling, aggregate productivity growth.
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Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 107.
Date of creation: Jan 2000
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Other versions of this item:
- Oulton, Nicholas, 2001. "Must the Growth Rate Decline? Baumol's Unbalanced Growth Revisited," Oxford Economic Papers, Oxford University Press, vol. 53(4), pages 605-27, October.
- NEP-ALL-2001-10-01 (All new papers)
- NEP-DEV-2001-10-01 (Development)
- NEP-TID-2001-10-01 (Technology & Industrial Dynamics)
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