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Cambridge Journal of Economics Advance Access originally published online on May 26, 2007
Cambridge Journal of Economics 2007 31(5):711-740; doi:10.1093/cje/bem004
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© The Author 2007. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Stagnation or transformation of a dual economy through endogenous productivity growth

Codrina Rada*

* United Nations Department of Economic and Social Affairs and New School for Social Research

Address for correspondence: 319 Baltic Street Apt. 18, Brooklyn, NY 11201, USA; email: radac{at}newschool.edu

A growth model is developed for an open dual economy. The economy expands owing 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-led 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.

Key Words: Productivity growth • Two sector growth models • Demand-led growth

JEL classifications: O11, O41, O47

Manuscript received January 23, 2006; final version received December 4, 2006.


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