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Dualism and growth in transition economies: a two-sector model with efficient and subsidized enterprises

Author

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  • Luigi Bonatti
  • Kiryl Haiduk

Abstract

We develop a two-sector growth model distinguishing between a private sector consisting of profit-making firms and a state-controlled sector consisting of subsidized firms. Both sectors produce the same good. The private sector generates learning-by-doing and technological spillovers, while the state-controlled one is technologically obsolete and �stagnant�. This distinction allows tracing the dual-economy stage of development observed in transition economies. While in some of them the period in which profit-making and loss-making enterprises coexist was rather brief, some continue to display this pattern because of their industrial legacies and politicoideological preferences. The model predicts that�ceteris paribus�the larger is the initial fraction of the workforce employed in the obsolete sector and the stronger is the degree of ideological hostility towards market forces, the lower is the speed at which a transition economy will converge to the income level of the most advanced countries.

Suggested Citation

  • Luigi Bonatti & Kiryl Haiduk, 2010. "Dualism and growth in transition economies: a two-sector model with efficient and subsidized enterprises," Department of Economics Working Papers 1015, Department of Economics, University of Trento, Italia.
    • Handle: RePEc:trn:utwpde:1015
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    More about this item

    Keywords

    Dual economy; endogenous growth; transitional economies;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • P28 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Natural Resources; Environment

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