Economic growth consequences of structural stagnation: A two-sector model of productive diversification

Carlos Ortiz

Lecturas de Economía, 2013, issue 78, 73-113

Abstract: The role of manufacturing input diversification is addressed in a two-sector model of endogenous growth. The general economic equilibrium is solved for the world. It is also solved for a small country with scant capital accumulation, low input diversification and high agricultural productivity. In this set up, developed economies lead the world structural transformation and achieve increasing growth rates by carrying out processes of productive diversification. For each country, the model yields that specialization may enhance economic development if factor prices are internationally equalized. However, due to terms of trade deterioration, factor prices are lower in underdeveloped economies. Hence, specialization of the small country according to its comparative advantages –structural stagnation– generates an inferior path of economic development (lower income and slower growth).

Keywords: Diversification; specialization; input-output deepening; structural stagnation; economic growth. (search for similar items in EconPapers)
JEL-codes: O11 O12 O14 O24 O33 O41 (search for similar items in EconPapers)
Date: 2013
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Journal Article: Economic growth consequences of structural stagnation: A two-sector model of productive diversification (2013)
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