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A growth model for a two-sector economy with endogenous productivity

Codrina Rada

Working Papers from United Nations, Department of Economics and Social Affairs

Abstract: A growth model is developed for an open dual economy. The economy expands due to a higher growth rate of labour productivity in the modern sector through the Kaldor-Verdoorn channel and higher effective demand through a Keynesian channel. The model incorporates a retardation mechanism affecting the slopes of productivity and output growth schedules as labour surplus and economies of scale diminish. A wage or profit-led regime and initial conditions may give rise to: de-industrialization in terms of both output and employment; a growth trap sustaining a situation of structural heterogeneity; or sustainable employment and adequate output and productivity growth.

Keywords: productivity growth; two sector growth models; demand-led growth (search for similar items in EconPapers)
JEL-codes: O11 O41 O47 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2007-07
New Economics Papers: this item is included in nep-dev
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