Post War Industrialisation and Growth: What Can a Lewis Type Model Explain?

Abstract

We investigate the extent to which segmented labour markets in industrializing economies, generate productivity and GDP growth. The paper presents a Lewis type model in which an efficiency wage results in a productivity gap between the traditional and modern sectors. We find, first, that the demand for modern sector labour is driven mainly by physical capital accumulation. Second, for 20% of our sample, segmented labour markets result in an implied additional return to capital of 13 percentage points. Thus we also find that this process of structural change has an important quantitative effect of observed growth rates.

JEL Classification: 00, 01, 03