Stagnation or Transformation of a Dual Economy Through Endogenous Productivity Growth
Posted: 16 Jun 2008
Date Written: September 2007
A growth model is developed for an open dual economy. The economy expands owing to a higher growth rate of labour productivity in the modern sector through the Kaldor-Verdoorn channel and higher effective demand through a Keynesian channel. The model incorporates a retardation mechanism affecting the slopes of productivity and output growth schedules as labour surplus and economies of scale diminish. A wage-led or profit-led regime and initial conditions may give rise to: de-industrialization in terms of both output and employment; a growth trap sustaining a situation of structural heterogeneity; or sustainable employment and adequate output and productivity growth.
Keywords: Productivity growth, Two sector growth models, Demand-led growth
JEL Classification: O11, O41, O47
Suggested Citation: Suggested Citation