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

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  • Nicholas Oulton
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.

Suggested Citation

  • Nicholas Oulton, 2000. "Must the growth rate decline? Baumol's unbalanced growth revisited," Bank of England working papers 107, Bank of England.
    • Handle: RePEc:boe:boeewp:107
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    References listed on IDEAS

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    1. Charles R. Hulten, 1978. "Growth Accounting with Intermediate Inputs," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 45(3), pages 511-518.
    2. Baumol, William J, 1972. "Macroeconomics of Unbalanced Growth: Reply," American Economic Review, American Economic Association, vol. 62(1), pages 150-150, March.
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