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Education, inequality, and development in a dual economy

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  • Yuki, Kazuhiro

Abstract

In the post-WWII era, most developing economies had decent economic growth, but, with current growth trends, the great majority of them are unlikely to transform into developed economies in near future. In these economies, the dual economic structure, the coexistence of the modern/formal sector and the traditional/informal sector, is persistent. The educational level of the population increased greatly, but the growth of the skill level, especially when measured by the share of high-skill workers, is relatively modest. Wage inequality between workers with basic skills and with advanced skills rose over time, while the inequality between workers with and without basic skills fell greatly. In order to understand these facts, this paper develops a dynamic dual-economy model and examines how the long-run outcome of the economy depends on the initial distribution of wealth and sectoral productivity. It is shown that, for fast transformation into a developed economy, the initial distribution must be such that extreme poverty is not prevalent and the size of ”middle class” is enough. If the former is satisfied but the latter is not, which would be the case for many developing economies falling into ”middle income trap”, the fraction of workers with basic skills and the share of the modern sector rise, but inequality between workers with advanced skills and with basic skills worsens and the traditional sector remains, consistent with the above-mentioned facts.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39062.

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Date of creation: 24 May 2012
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Handle: RePEc:pra:mprapa:39062

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Keywords: dual economy; modernization; education; wealth distribution;

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References

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  1. Proto, Eugenio, 2007. "Land and the transition from a dual to a modern economy," Journal of Development Economics, Elsevier, vol. 83(1), pages 88-108, May.
  2. Dietz Vollrath, 2008. "The Dual Economy in Long-run Development," Working Papers 2008-03, Department of Economics, University of Houston.
  3. Paap, Richard & Franses, Philip Hans & van Dijk, Dick, 2005. "Does Africa grow slower than Asia, Latin America and the Middle East? Evidence from a new data-based classification method," Journal of Development Economics, Elsevier, vol. 77(2), pages 553-570, August.
  4. Eric A. Hanushek & Ludger Woessmann, 2009. "Do Better Schools Lead to More Growth? Cognitive Skills, Economic Outcomes, and Causation," NBER Working Papers 14633, National Bureau of Economic Research, Inc.
  5. Christopher Colclough & Geeta Kingdon & Harry Patrinos, 2010. "The Changing Pattern of Wage Returns to Education and its Implications," Development Policy Review, Overseas Development Institute, vol. 28(6), pages 733-747, November.
  6. Davis, Lewis & Owen, Ann L. & Videras, Julio, 2007. "Do all countries follow the same growth process?," MPRA Paper 11589, University Library of Munich, Germany, revised Sep 2008.
  7. Eric A. Hanushek & Ludger Woessmann, 2008. "The Role of Cognitive Skills in Economic Development," Journal of Economic Literature, American Economic Association, vol. 46(3), pages 607-68, September.
  8. Psacharopoulos, George & Patrinos, Harry Anthony, 2002. "Returns to investment in education : a further update," Policy Research Working Paper Series 2881, The World Bank.
  9. Yuki, Kazuhiro, 2008. "Sectoral Shift, Wealth Distribution, And Development," Macroeconomic Dynamics, Cambridge University Press, vol. 12(04), pages 527-559, September.
  10. Wang, Ping & Xie, Danyang, 2004. "Activation of a modern industry," Journal of Development Economics, Elsevier, vol. 74(2), pages 393-410, August.
  11. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  12. Deininger, Klaus & Olinto, Pedro, 2000. "Asset distribution, inequality, and growth," Policy Research Working Paper Series 2375, The World Bank.
  13. Yuki, Kazuhiro, 2007. "Urbanization, informal sector, and development," Journal of Development Economics, Elsevier, vol. 84(1), pages 76-103, September.
  14. Marco Alfo & Giovanni Trovato & Robert J. Waldmann, 2008. "Testing for country heterogeneity in growth models using a finite mixture approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(4), pages 487-514.
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Cited by:
  1. Adnan Efendić & Naida Trkic-Izmirlija, 2013. "Effects of the global economic crisis and public spending on income distribution in Bosnia and Herzegovina," wiiw Balkan Observatory Working Papers 108, The Vienna Institute for International Economic Studies, wiiw.

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