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

The Bank of England Working Paper No. 107

49 Pages Posted: 16 Oct 2000

See all articles by Nicholas Oulton

Nicholas Oulton

London School of Economics - Centre for Macroeconomics(CFM)

Date Written: 1999

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.

JEL Classification: O47

Suggested Citation

Oulton, Nicholas, Must the Growth Rate Decline? Baumol's Unbalanced Growth Revisited (1999). The Bank of England Working Paper No. 107, Available at SSRN: https://ssrn.com/abstract=228963 or http://dx.doi.org/10.2139/ssrn.228963

Nicholas Oulton (Contact Author)

London School of Economics - Centre for Macroeconomics(CFM) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

HOME PAGE: http://https://ideas.repec.org/e/pou3.html

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