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The Growth Disease at 50 – Baumol after Oulton

Jochen Hartwig and Hagen Krämer
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Hagen Krämer: Faculty of Management Science and Engineering, Karlsruhe University of Applied Sciences, Germany

No 10, Chemnitz Economic Papers from Department of Economics, Chemnitz University of Technology

Abstract: The year 2017 marks the 50th anniversary of William J. Baumol’s seminal model of ‘unbalanced growth’, which predicts the so-called ‘Growth Disease’, i.e., the tendency of aggregate productivity growth to slow down in the process of tertiarisation. In an important contribution published in 2001, however, Nicholas Oulton showed that the shift of resources to the service sector may raise rather than lower aggregate productivity growth if the service industries produce intermediate rather than final products. While Oulton’s reasoning is logically consistent, the question arises whether it is also valid from an empirical point of view. We use the 2011 release of EU KLEMS data to determine whether the shift of resources to services has raised or lowered aggregate productivity growth in the G7 countries.

Keywords: Baumol’s Disease; productivity growth; EU KLEMS (search for similar items in EconPapers)
JEL-codes: E24 O14 O41 O47 O57 (search for similar items in EconPapers)
Date: 2017-07
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Published in Chemnitz Economic Papers, June 2017, pages 1-25

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https://www.tu-chemnitz.de/wirtschaft/vwl1/RePEc/d ... _after_Oulton_v4.pdf First version, 2017 (application/pdf)

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Persistent link: http://EconPapers.repec.org/RePEc:tch:wpaper:cep010

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