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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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File URL: http://www.efm.bris.ac.uk/economics/working_papers/pdffiles/dp14639.pdf
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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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  10. Jonathan Temple, 2005. "Dual economy models: a primer for growth economists," Bristol Economics Discussion Papers 05/574, Department of Economics, University of Bristol, UK.
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  12. Kuralbayeva, Karlygash & Stefanski, Radoslaw, 2013. "Windfalls, structural transformation and specialization," Journal of International Economics, Elsevier, vol. 90(2), pages 273-301.
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  20. 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.
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  24. 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.
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  27. 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.
  28. 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.
  29. Luis Angeles, 2010. "An alternative test of Kuznets’ hypothesis," Journal of Economic Inequality, Springer, vol. 8(4), pages 463-473, December.
  30. Alwyn Young, 2013. "Inequality, the Urban-Rural Gap, and Migration," The Quarterly Journal of Economics, Oxford University Press, vol. 128(4), pages 1727-1785.
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