Stagnation or Transformation of a Dual Economy Through Endogenous Productivity Growth

Posted: 16 Jun 2008

See all articles by Codrina Rada

Codrina Rada

The New School - Department of Economics

Date Written: September 2007

Abstract

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

Rada, Codrina, Stagnation or Transformation of a Dual Economy Through Endogenous Productivity Growth (September 2007). Cambridge Journal of Economics, Vol. 31, Issue 5, pp. 711-740, 2007, Available at SSRN: https://ssrn.com/abstract=1146009 or http://dx.doi.org/10.1093/cje/bem004

Codrina Rada (Contact Author)

The New School - Department of Economics ( email )

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New York, NY 10003
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