Dualism and growth in transition economies: a two-sector model with efficient and subsidized enterprises

Luigi Bonatti () and Kiryl Haiduk ()

No 1015, Department of Economics Working Papers from Department of Economics, University of Trento, Italia

Abstract: We develop a two-sector growth model distinguishing between a private sector consisting of profit-making firms and a state-controlled sector consisting of subsidized firms. Both sectors produce the same good. The private sector generates learning-by-doing and technological spillovers, while the state-controlled one is technologically obsolete and �stagnant�. This distinction allows tracing the dual-economy stage of development observed in transition economies. While in some of them the period in which profit-making and loss-making enterprises coexist was rather brief, some continue to display this pattern because of their industrial legacies and politicoideological preferences. The model predicts that�ceteris paribus�the larger is the initial fraction of the workforce employed in the obsolete sector and the stronger is the degree of ideological hostility towards market forces, the lower is the speed at which a transition economy will converge to the income level of the most advanced countries.

Keywords: Dual economy; endogenous growth; transitional economies (search for similar items in EconPapers)
JEL-codes: O1 O4 P28 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-cis, nep-dev and nep-tra
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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