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Structural Change, Wage Formation and Economic Growth in Low-Income Countries

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  • Bender, Dieter

Abstract

This paper analyzes the effects of structural change on the rates of growth of wages, employment and per-capita income in low-income countries, their dualistic structure shown by a Lewis-type two-sector model. Structural change is measured by the varying shares of sectoral employment in total employment. It is shown that the growth rates of GDP and per-capita income can be formulated as functions of these sectoral employment shares. Distinguishing the phases of dualistic development with and without labour surplus and post-dualistic development, it is demonstrated that each of these stages exhibits different growth dynamics: high but falling growth rates under dualistic development with labour surplus, low but rising growth rates under dualistic development after absorption of the labour surplus, growth rates falling again and converging toward a higher income steady state in the post-dual economy. As the growth dynamics of dualistic development are explained by a modified Lewis model and those of post-dualistic development by the Solow model, the study also highlights the complementary roles both models are playing in development economics.

Suggested Citation

  • Bender, Dieter, 2012. "Structural Change, Wage Formation and Economic Growth in Low-Income Countries," IEE Working Papers 194, Institut fuer Entwicklungsforschung und Entwicklungspolitik, Ruhr-Universitaet Bochum.
  • Handle: RePEc:bom:ieewps:194
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    1. Oded Galor, 2011. "Unified Growth Theory," Economics Books, Princeton University Press, edition 1, number 9477.
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    More about this item

    Keywords

    Economic growth; Dualistic development; Labour surplus; Rural-urban migration;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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