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Growth and Structural Change in a Dynamic Lagakos-Waugh Model

  • Huikang Ying


This paper proposes a dual growth model built on a mechanism of self-selection whereby heterogeneous workers choose their optimal sectors based on comparative advantage. It shows that economic growth shifts workers’ comparative advantage, and this shift induces rural-urban structural change. Following this mechanism, the model shows that average individual productivity in agriculture increases, while that in the non-agriculture sector decreases during structural change. Findings from simulations suggests an inverse correlation between the speed of structural change and dispersion of productivity across workers, and present improved predictions on transitional dynamics compared to the standard neoclassical growth model. The analysis of wage dynamics suggests that inequality over time does not necessarily follow an inverted-U curve when structural transformation takes place.

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Paper provided by Department of Economics, University of Bristol, UK in its series Bristol Economics Discussion Papers with number 14/639.

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Length: 45 pages
Date of creation: May 2014
Date of revision:
Handle: RePEc:bri:uobdis:14/639
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  1. Barry Bosworth & Susan M. Collins, 2007. "Accounting for Growth: Comparing China and India," NBER Working Papers 12943, National Bureau of Economic Research, Inc.
  2. Kei-Mu Yi & Jing Zhang, 2010. "Structural Change in an Open Economy," Working Papers 595, Research Seminar in International Economics, University of Michigan.
  3. Trimborn, Timo & Koch, Karl-Josef & Steger, Thomas M., 2008. "Multidimensional Transitional Dynamics: A Simple Numerical Procedure," Macroeconomic Dynamics, Cambridge University Press, vol. 12(03), pages 301-319, June.
  4. Kongsamut, Piyabha & Rebelo, Sérgio & Xie, Danyang, 1997. "Beyond Balanced Growth," CEPR Discussion Papers 1693, C.E.P.R. Discussion Papers.
  5. David Lagakos & Michael E. Waugh, 2013. "Selection, Agriculture, and Cross-Country Productivity Differences," American Economic Review, American Economic Association, vol. 103(2), pages 948-80, April.
  6. Robinson, Sherman, 1976. "A Note on the U Hypothesis Relating Income Inequality and Economic Development," American Economic Review, American Economic Association, vol. 66(3), pages 437-40, June.
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  8. Francisco J. Buera & Joseph P. Kaboski, 2009. "Can Traditional Theories of Structural Change Fit The Data?," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 469-477, 04-05.
  9. Margarida Duarte & Diego Restuccia, 2009. "The Role of the Structural Transformation in Aggregate Productivity," Working Papers tecipa-348, University of Toronto, Department of Economics.
  10. Temple, Jonathan & Wößmann, Ludger, 2006. "Dualism and cross-country growth regressions," Munich Reprints in Economics 19619, University of Munich, Department of Economics.
  11. Guy Michaels & Ferdinand Rauch & Stephen Redding, 2008. "Urbanisation and Structural Transformation," CEP Discussion Papers dp0892, Centre for Economic Performance, LSE.
  12. Luis Angeles, 2010. "An alternative test of Kuznets’ hypothesis," Journal of Economic Inequality, Springer, vol. 8(4), pages 463-473, December.
  13. Ngai, Liwa Rachel & Pissarides, Christopher, 2004. "Structural Change in a Multi-Sector Model of Growth," CEPR Discussion Papers 4763, C.E.P.R. Discussion Papers.
  14. Fumio Hayashi & Edward C. Prescott, 2008. "The Depressing Effect of Agricultural Institutions on the Prewar Japanese Economy," Journal of Political Economy, University of Chicago Press, vol. 116(4), pages 573-632, 08.
  15. Daron Acemoglu & Veronica Guerrieri, 2006. "Capital Deepening and Non-Balanced Economic Growth," NBER Working Papers 12475, National Bureau of Economic Research, Inc.
  16. Jonathan Temple, 2005. "Dual economy models: a primer for growth economists," Bristol Economics Discussion Papers 05/574, Department of Economics, University of Bristol, UK.
  17. Martin, Will & Mitra, Devashish, 2001. "Productivity Growth and Convergence in Agriculture versus Manufacturing," Economic Development and Cultural Change, University of Chicago Press, vol. 49(2), pages 403-22, January.
  18. Susan M. Collins & Barry P. Bosworth, 1996. "Economic Growth in East Asia: Accumulation versus Assimilation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 135-204.
  19. Dekle, Robert & Vandenbroucke, Guillaume, 2012. "A quantitative analysis of China's structural transformation," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 119-135.
  20. repec:tpr:qjecon:v:110:y:1995:i:3:p:641-80 is not listed on IDEAS
  21. Robert Dekle & Guillaume Vandenbroucke, 2010. "Whither Chinese Growth? A Sectoral Growth Accounting Approach," Review of Development Economics, Wiley Blackwell, vol. 14(s1), pages 487-498, 08.
  22. Robert E. Lucas, Jr., 2004. "Life Earnings and Rural-Urban Migration," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages S29-S59, February.
  23. Robert J. Barro & Rachel McCleary, 2003. "Religion and Economic Growth," NBER Working Papers 9682, National Bureau of Economic Research, Inc.
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  25. Robertson, Peter E, 1999. "Economic Growth and the Return to Capital in Developing Economies," Oxford Economic Papers, Oxford University Press, vol. 51(4), pages 577-94, October.
  26. Robert G. King & Sergio T. Rebelo, 1989. "Transitional Dynamics and Economic Growth in the Neoclassical Model," NBER Working Papers 3185, National Bureau of Economic Research, Inc.
  27. Kent Smetters, 2003. "The (Interesting) Dynamic Properties of the Neoclassical Growth Model with CES Production," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 697-707, July.
  28. Kuralbayeva, Karlygash & Stefanski, Radoslaw, 2013. "Windfalls, structural transformation and specialization," Journal of International Economics, Elsevier, vol. 90(2), pages 273-301.
  29. Robert J. Barro & Xavier Sala-i-Martin, 2003. "Economic Growth, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262025531, June.
  30. Jonathan R. W. Temple, 2005. "Growth and Wage Inequality in a Dual Economy," Bulletin of Economic Research, Wiley Blackwell, vol. 57(2), pages 145-169, 04.
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