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The dual economy in long-run development
1University of Houston, 201C McElhinney Hall, Houston, TX 77204, USA.
Journal of Population Economics
|August 16, 2013
Summary
Developing economies feature dual economies with distinct modern and traditional sectors. This study models how productivity differences arise endogenously, explaining the dual economy
Area of Science:
- Economic Development
- Growth Theory
- Labor Economics
Background:
- Developing economies exhibit a dual structure: a modern commercial sector coexists with a traditional subsistence sector.
- Productivity disparities between these sectors lead to significant aggregate productivity losses.
- Existing theories inadequately explain the origin and evolution of price distortions driving these disparities.
Purpose of the Study:
- To develop a theoretical model explaining the endogenous emergence of productivity differences in dual economies.
- To analyze the role of non-separability between market and non-market time in the traditional sector.
- To integrate endogenous fertility and a unified growth framework to understand the dual economy's lifecycle.
Main Methods:
- Constructed a theoretical model of the dual economy.
- Incorporated a non-separability condition for the value of time in the traditional sector.
- Integrated endogenous fertility and a unified growth framework.
Main Results:
- Productivity differences arise endogenously from the non-separability of market and non-market time.
- The model demonstrates the origin, persistence, and eventual disappearance of the dual economy.
- Traditional sector productivity growth can worsen dual economy inefficiencies and slow overall growth.
Conclusions:
- Endogenous factors, particularly time valuation in the traditional sector, drive dual economy dynamics.
- The lifecycle of a dual economy can be explained within a unified growth framework.
- Policy implications suggest prioritizing modern sector growth for more efficient development.
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