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Must the Growth Rate Decline? Baumol's Unbalanced Growth Revisited

  • Oulton, Nicholas

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 economies, where resources are indeed shifting towards the relatively stagnant service industries. But Baumol's conclusion only follows logically if the stagnant industries produce final products. If instead they produce intermediate products, the aggregate productivity growth rate may rise rather than fall. This is empirically relevant since the most rapidly expanding service industries, e.g. business services, are producing mainly for intermediate use. Copyright 2001 by Oxford University Press.

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Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 53 (2001)
Issue (Month): 4 (October)
Pages: 605-27

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Handle: RePEc:oup:oxecpp:v:53:y:2001:i:4:p:605-27
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  1. Stiroh, Kevin J, 1998. "Computers, Productivity, and Input Substitution," Economic Inquiry, Western Economic Association International, vol. 36(2), pages 175-91, April.
  2. Baumol, William J. & Wolff, Edward N., 1984. "On Interindustry Differences in Absolute Productvity," Working Papers 84-03, C.V. Starr Center for Applied Economics, New York University.
  3. Zvi Griliches, 1998. "Productivity, R&D, and the Data Constraint," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 347-374 National Bureau of Economic Research, Inc.
  4. Robert J. Barro, 1998. "Notes on Growth Accounting," NBER Working Papers 6654, National Bureau of Economic Research, Inc.
  5. Baumol, William J, 1972. "Macroeconomics of Unbalanced Growth: Reply," American Economic Review, American Economic Association, vol. 62(1), pages 150, March.
  6. Ramana Ramaswamy & Bob Rowthorn, 1997. "Deindustrialization: Causes and Implications," IMF Working Papers 97/42, International Monetary Fund.
  7. Zvi Griliches, 1992. "Output Measurement in the Service Sectors," NBER Books, National Bureau of Economic Research, Inc, number gril92-1, December.
  8. Hulten, Charles R, 1978. "Growth Accounting with Intermediate Inputs," Review of Economic Studies, Wiley Blackwell, vol. 45(3), pages 511-18, October.
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