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Sectoral Shift, Wealth Distribution, And Development

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  • Yuki, Kazuhiro

Abstract

There are two phenomena widely observed when an economy departs from an underdeveloped state and starts rapid economic growth. One is the shift of production, employment, and consumption from the traditional sector to the modern sector, and the other is a large increase in educational levels of its population. The question is why some economies have succeeded in such structural change, but others do not. In order to examine the question, an OLG model that explicitly takes into account the sectoral shift and human capital accumulation as sources of development is constructed. It is shown that, for a successful structural change, an economy must start with a wealth distribution that gives rise to an adequate size of 'middle class'. Once the economy initiates the 'take-off', the sectoral shift and human capital growth continue until it reaches the steady state with high income and equal distribution. However, when the productivity of the traditional sector is low, irrespective of the initial distribution and the productivity of the modern sector, it fails in the sectoral shift and ends up in one of steady states with low income and high inequality. Thus, sufficient productivity of the traditional sector is a prerequisite for development.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 12 (2008)
Issue (Month): 04 (September)
Pages: 527-559

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Handle: RePEc:cup:macdyn:v:12:y:2008:i:04:p:527-559_07

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Citations

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Cited by:
  1. Yuki, Kazuhiro, 2012. "Education, inequality, and development in a dual economy," MPRA Paper 39062, University Library of Munich, Germany.
  2. Dalila NICET – CHENAF (GREThA UMR CNRS 5113) & Eric ROUGIER (GREThA UMR CNRS 5113), 2009. "Human capital and structural change: how do they interact with each other in growth?," Cahiers du GREThA 2009-14, Groupe de Recherche en Economie Théorique et Appliquée.
  3. Nishida, Keigo, 2012. "Agricultural Productivity Differences and Credit Market Imperfections," MPRA Paper 38962, University Library of Munich, Germany.
  4. Yuki, Kazuhiro, 2009. "Government and human capital in a model of development through modernization and specialization," MPRA Paper 19760, University Library of Munich, Germany.
  5. Leonid V. Azarnert, 2014. "Transportation Costs and the Great Divergence," CESifo Working Paper Series 4766, CESifo Group Munich.
  6. Yuki, Kazuhiro, 2009. "Education, Signaling, and Wage Inequality in a Dynamic Economy," MPRA Paper 16982, University Library of Munich, Germany.
  7. García-Díaz, César & Moreno-Monroy, Ana I., 2012. "Social influence, agent heterogeneity and the emergence of the urban informal sector," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(4), pages 1563-1574.

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