1887

UN Department of Economic and Social Affairs (DESA) Working Papers

The UN Department of Economic and Social Affairs (DESA) Working Papers aim to stimulate discussion and critical comment on the broad range of economic, social and environmental issues associated with the United Nations Development Agenda.

English

A Growth Model for a Two-Sector Economy with Endogenous Productivity

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.

English

Keywords: two sector growth models, demand-led growth, Productivity growth
JEL: O47: Economic Development, Innovation, Technological Change, and Growth / Economic Growth and Aggregate Productivity / Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence; O41: Economic Development, Innovation, Technological Change, and Growth / Economic Growth and Aggregate Productivity / One, Two, and Multisector Growth Models; O11: Economic Development, Innovation, Technological Change, and Growth / Economic Development / Macroeconomic Analyses of Economic Development
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