A Model of Unbalanced Growth: The Market versus the Non-market Sector of the Economy

Norman Gemmell

Oxford Economic Papers, 1987, vol. 39, issue 2, 253-67

Abstract: This paper provides an explanation of nonmarket (public) sector growth using a two-sector competitive equilibrium model, which allows for different capital intensities between sectors. The model predicts that higher per capita income levels will be associated with higher shares of both capital and labor, and higher average costs, in the nonmarket sector. The model yields some testable predictions such as rising nominal, relative to real, expenditure on the nonmarket sector as income rises. Evidence from a number of sources appears to support the model's main predictions, including evidence of rising relative costs in the public sector. Copyright 1987 by Royal Economic Society.

Date: 1987
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