Business and Financial Services: New Engine of Economic Growth

Does the continuous shift of resources from the traditional sectors to the business and financial services sector imply inevitable stagnation in the aggregate productivity growth in the developed economies Economic inquiry into this issue has generated contradictory conclusions. This paper evaluates the traditional stagnationist and the modern optimist arguments and employs an applied general equilibrium multi-sectoral growth model to simulate the impact of unbalanced sectoral productivity growth on the overall productivity growth path. A particular focus is on the relationship between a sector s industrial linkages and its impact on overall growth. The simulation results suggest that the actual aggregate productivity growth path in the long-run deviates from either case.