Chapter

The Dual Economy

Pranab Bardhan and Christopher Udry

in Development Microeconomics

Published in print May 1999 | ISBN: 9780198773719
Published online November 2003 | e-ISBN: 9780191595929 | DOI: http://dx.doi.org/10.1093/0198773714.003.0015
 The Dual Economy

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Begins with a dual economy model focusing on the relation between labour transfer from agriculture to industry and the resultant pressure on food prices and on what this implies for the industrial wage rate. Contrary to the horizontal labour supply curve of the Lewis model, it is shown that the elasticity of both the industrial wage and food prices with respect to intersectoral labour transfer is likely to be large. The next section uses a model with productivity growth in the industrial sector determined by learning‐by‐doing to demonstrate how productivity improvements in the agricultural sector may speed up industrialization. Finally, we consider a two‐sector model with a hierarchy of income between peasants, workers, and capitalists. By looking at shifts of the Lorenz curve, we are able to trace the effect of capital accumulation on income distribution and to illustrate why this is likely to be ambiguous.

Keywords: capital accumulation; dual economy; income distribution; industrialization; labour supply; labour transfer; Lewis model; productivity; two‐sector growth models

Chapter.  4466 words.  Illustrated.

Subjects: Economic Development and Growth

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