Education, inequality, and development in a dual economy

Kazuhiro Yuki

MPRA Paper from University Library of Munich, Germany

Abstract: In the post-WWII era, most developing economies had decent economic growth, but, with current growth trends, the great majority of them are unlikely to transform into developed economies in near future. In these economies, the dual economic structure, the coexistence of the modern/formal sector and the traditional/informal sector, is persistent. The educational level of the population increased greatly, but the growth of the skill level, especially when measured by the share of high-skill workers, is relatively modest. Wage inequality between workers with basic skills and with advanced skills rose over time, while the inequality between workers with and without basic skills fell greatly. In order to understand these facts, this paper develops a dynamic dual-economy model and examines how the long-run outcome of the economy depends on the initial distribution of wealth and sectoral productivity. It is shown that, for fast transformation into a developed economy, the initial distribution must be such that extreme poverty is not prevalent and the size of ”middle class” is enough. If the former is satisfied but the latter is not, which would be the case for many developing economies falling into ”middle income trap”, the fraction of workers with basic skills and the share of the modern sector rise, but inequality between workers with advanced skills and with basic skills worsens and the traditional sector remains, consistent with the above-mentioned facts.

Keywords: dual economy; modernization; education; wealth distribution (search for similar items in EconPapers)
JEL-codes: J31 O15 O17 (search for similar items in EconPapers)
Date: 2012-05-24
New Economics Papers: this item is included in nep-dev, nep-iue and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://mpra.ub.uni-muenchen.de/39062/1/MPRA_paper_39062.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/42760/2/MPRA_paper_42760.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/47733/10/MPRA_paper_47733.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/52750/18/MPRA_paper_52750.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/53348/26/MPRA_paper_53348.pdf revised version (application/pdf)

Related works:
Journal Article: EDUCATION, INEQUALITY, AND DEVELOPMENT IN A DUAL ECONOMY (2016)
Working Paper: Education, inequality, and development in a dual economy (2014)
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