A Structural Economic Dynamics Approach to ‘Stagnationist’ Unbalanced Growth

Abstract

ABSTRACT Our inquiry offers an analysis of ‘stagnationist’ unbalanced growth through making use of a Structural Economic Dynamic (SED) approach. What we intend to establish are some of the advantages associated with treating William Baumol’s unbalanced growth model as a particular case of Luigi Pasinetti’s framework. One such advantage involves challenging assumptions behind the model by scrutinising the conditions under which Baumol’s result is valid. Another advantage consists of extending the analysis to an arbitrary number of sectors to consider quasi-proportional growth and full dynamics – cases considered by Pasinetti. As suggested by Nicholas Oulton and drawing from the SED framework, we then expand the model to consider intermediate inputs, through using the concept of vertical integration. This leads us to confirm the remark advanced by Oulton; namely, that in the presence of intermediate goods, the aggregate growth rate of productivity might not slow down sufficiently to converge towards the lower productivity growth sector, as advocated by Baumol. In sum, the point we seek to establish is that the ‘stagnationist’ outcome depends on an intricate relation between supply and demand. The multi-sectoral approach that considers intermediate inputs suggests that a disaggregated analysis of well-established results can indeed offer novel insights.