The Factors behind Unbalanced Economic Growth

Abstract

These days, technological progress and automation are widespread, but productivity growth and thus overall economic growth lags behind. There is a strong conviction that the declining growth rates are caused by a shortfall in aggregate demand. This shortfall in aggregate demand might be due to the development of a ‘dual economy’. A dual economy is an economy in which a limited number of economic activities experience high productivity growth rates due to automation and technological progress (progressive sector), meanwhile the remaining economic activities experience almost no productivity growth because automation is barely present (stagnant sector). A dual economy develops due to unbalanced economic growth between the progressive and stagnant sector. To assure stable economic growth, it is important to slow down unbalanced growth. However, until today it is not known how to effectively target unbalanced growth, because the driving factors are not well known. This research tries to improve the understanding of unbalanced growth by finding the driving factors behind unbalanced growth. A macroeconomic modelling methodology is used to achieve this objective. Conclusions that provide information about which factors drive unbalanced growth, and how these factors should be influenced by policy makers to slow down unbalanced growth and stimulate stable growth are provided.