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Must the growth rate decline? Baumol's unbalanced growth revisited

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Nicholas Oulton

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Abstract

According 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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Paper provided by Bank of England in its series Bank of England working papers with number 107.

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Handle: RePEc:boe:boeewp:107

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  1. Ramana Ramaswamy & Bob Rowthorn, 1997. "Deindustrialization: Causes and Implications," IMF Working Papers 97/42, International Monetary Fund.
  2. Robert J. Barro, 1998. "Notes on Growth Accounting," NBER Working Papers 6654, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Stiroh, Kevin J, 1998. "Computers, Productivity, and Input Substitution," Economic Inquiry, Oxford University Press, vol. 36(2), pages 175-91, April.
  4. Hulten, Charles R, 1978. "Growth Accounting with Intermediate Inputs," Review of Economic Studies, Blackwell Publishing, vol. 45(3), pages 511-18, October. [Downloadable!] (restricted)
  5. Baumol, William J, 1972. "Macroeconomics of Unbalanced Growth: Reply," American Economic Review, American Economic Association, vol. 62(1), pages 150, March.
  6. Griliches, Zvi, 1994. "Productivity, R&D, and the Data Constraint," American Economic Review, American Economic Association, vol. 84(1), pages 1-23, March.
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  7. Baumol, William J & Wolff, Edward N, 1984. "On Interindustry Differences in Absolute Productivity," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 1017-34, December. [Downloadable!] (restricted)
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  1. Enrique R. Casares, 2007. "Productivity, Structural Change in Employment and Economic Growth," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 22(2), pages 335-355. [Downloadable!]
  2. Susanto Basu & John G. Fernald & Nicholas Oulton & Sylaja Srinivasan, 2003. "The case of the missing productivity growth: or, does information technology explain why productivity accelerated in the United States but not the United Kingdom?," Working Paper Series WP-03-08, Federal Reserve Bank of Chicago. [Downloadable!]
    Other versions:
  3. Nicholas Oulton, . "Investment-specific technological change and growth accounting," Bank of England working papers 213, Bank of England. [Downloadable!]
    Other versions:
  4. Jula, Dorin & Jula, Nicoleta, 2007. "Inter-industries productivity gap and the services employment dynamics," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 4(2), pages 5-15, June. [Downloadable!]
  5. Antonello D’Agostino & Roberta Serafini & Melanie Ward, 2006. "Sectoral Explanations of Employment in Europe: The Role of Services," IZA Discussion Papers 2257, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  6. Nicholas Oulton, 2004. "A Statistical Framework for the Analysis of Productivity and Sustainable Development," CEP Discussion Papers dp0629, Centre for Economic Performance, LSE. [Downloadable!]
  7. Nicholas Oulton, . "Productivity versus welfare: or, GDP versus Weitzman's NDP," Bank of England working papers 163, Bank of England. [Downloadable!]
    Other versions:
  8. Susanto Basu & John G. Fernald & Nicholas Oulton & Sylaja Srinivasan, 2003. "The Case of the Missing Productivity Growth: Or, Does Information Technology Explain why Productivity Accelerated in the US but not the UK?," NBER Working Papers 10010, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. L. Rachel Ngai & Christopher A. Pissarides, 2005. "Structural Change in a Multi-Sector Model of Growth," IZA Discussion Papers 1800, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  10. Jochen Hartwig, 2005. "Sind unsere gesamtwirtschaftlichen Probleme überhaupt lösbar?," KOF Working papers 05-112, KOF Swiss Economic Institute, ETH Zurich. [Downloadable!]
  11. Giulia Felice, 2003. "Dinamica strutturale e occupazione nei servizi," Department of Economics Working Papers 0304, Department of Economics, University of Trento, Italia. [Downloadable!]
  12. Jochen Hartwig, 2008. "Has health capital formation cured ‘Baumol’s Disease’? – Panel Granger causality evidence for OECD countries," KOF Working papers 08-206, KOF Swiss Economic Institute, ETH Zurich. [Downloadable!]
  13. Thomas Moutos & William Scarth, 2002. "Technical Change and Unemployment: Policy Responses and Distributional Considerations," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  14. Hoekman, Bernard & Mattoo, Aaditya, 2008. "Services trade and growth," Policy Research Working Paper Series 4461, The World Bank. [Downloadable!]
  15. Michael Peneder, 2002. "Industrial Structure and Aggregate Growth," WIFO Working Papers 182, WIFO. [Downloadable!]
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  16. Mika Maliranta & Tuomo Nikulainen, 2008. "Labour Force Paths as Industry Linkages: A Perspective on Clusters and Industry Life Cycles," Discussion Papers 1168, The Research Institute of the Finnish Economy. [Downloadable!]
  17. Nicholas Oulton & Sylaja Srinivasan, . "Productivity growth in UK industries, 1970-2000: structural change and the role of ICT," Bank of England working papers 259, Bank of England. [Downloadable!]
  18. Gries, Thomas & Naude, Wim, 2008. "Entrepreneurship and Structural Economic Transformation," Working Papers RP2008/62, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  19. D'Agostino, Antonello & Serafini, Roberta & Ward, Melanie, 2006. "Sectoral explanations of employment in Europe: the role of services," Research Technical Papers 8/RT/06, Central Bank & Financial Services Authority of Ireland (CBFSAI). [Downloadable!]
  20. Bernard Hoekman, 2008. "The General Agreement on Trade in Services: Doomed to Fail? Does it Matter?," Journal of Industry, Competition and Trade, Springer, vol. 8(3), pages 295-318, December. [Downloadable!] (restricted)
  21. Henk L.M. Kox, 2004. "The contribution of business services to aggregate productivity growth," Industrial Organization 0402005, EconWPA. [Downloadable!]
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