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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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  3. Jonathan Temple & Ludger Wößmann, 2006. "Dualism and cross-country growth regressions," Journal of Economic Growth, Springer, vol. 11(3), pages 187-228, September.
  4. L. Rachel Ngai & Christopher Pissarides, 2004. "Structural change in a multi-sector model of growth," LSE Research Online Documents on Economics 3550, London School of Economics and Political Science, LSE Library.
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  9. Robert Dekle & Guillaume Vandenbroucke, 2006. "A quantitative analysis of China’s structural transformation," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
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  12. Luis Angeles, 2010. "An alternative test of Kuznets’ hypothesis," Journal of Economic Inequality, Springer, vol. 8(4), pages 463-473, December.
  13. Gary S. Fields, 1979. "A Welfare Economic Approach to Growth and Distribution in the Dual Economy," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 325-353.
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  17. 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.
  18. 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.
  19. Jonathan Temple, 2005. "Dual economy models: a primer for growth economists," Bristol Economics Discussion Papers 05/574, Department of Economics, University of Bristol, UK.
  20. Margarida Duarte & Diego Restuccia, 2009. "The Role of the Structural Transformation in Aggregate Productivity," Working Papers tecipa-348, University of Toronto, Department of Economics.
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  23. 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.
  24. 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.
  25. Alwyn Young, 2013. "Inequality, the Urban-Rural Gap, and Migration," The Quarterly Journal of Economics, Oxford University Press, vol. 128(4), pages 1727-1785.
  26. 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.
  27. Robert J. Barro & Xavier Sala-i-Martin, 2003. "Economic Growth, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262025531, December.
  28. Alwyn Young, 1995. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 641-680.
  29. 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.
  30. Kuralbayeva, Karlygash & Stefanski, Radoslaw, 2013. "Windfalls, structural transformation and specialization," Journal of International Economics, Elsevier, vol. 90(2), pages 273-301.
  31. A. D. Roy, 1951. "Some Thoughts On The Distribution Of Earnings," Oxford Economic Papers, Oxford University Press, vol. 3(2), pages 135-146.
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