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Toward an Understanding of Economic Growth in Africa: A Reinterpretation of the Lewis Model

Xinshen Diao and Margaret McMillan ()

World Development, 2018, vol. 109, issue C, 511-522

Abstract: We develop a model economy that has many of the features of Lewis (1954) but that also includes an in-between sector as described by Lewis (1979). Our model underscores the importance of the following determinants of structural change: (i) productivity growth in the agricultural sector; (ii) productivity growth in the nonagricultural sector and; (iii) the terms of trade. Public investment enhances productivity growth in all sectors but when it is financed by foreign inflows, it also causes a real exchange rate appreciation leading to a contraction in the open modern sector. These results provide a partial explanation for recent patterns of growth in Rwanda and elsewhere in Africa where the nontradables or what we call the in-between sector has expanded more rapidly than the tradable sector. Our results also highlight the dilemma faced by poor countries in dire need of public investment with a very limited tax base.

Keywords: dual-economy model; Africa’s growth; structural change; Dutch disease; Rwanda (search for similar items in EconPapers)
Date: 2018
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Working Paper: Toward an Understanding of Economic Growth in Africa: A Re-Interpretation of the Lewis Model (2015) Downloads
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