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Development Strategy, Optimal Industrial Structure and Economic Growth in Less Developed Countries

  • Justin Yifu Lin

    (China Center for Economic Research)

  • Pengfei Zhang

In this paper, we develop an endogenous growth model that combines structural change with repeated product improvements. There are two sectors in the present paper, one is traditional sector, and the other is modern sector. The technological progress in the traditional sector takes the form of horizontal innovation based on expanding variety, while the technologies in the modern sector become not only increasingly capital-intensive but also progressively productive over time. The application of the basic model to the less developed economies show that the optimal industrial structure in the less developed countries (LDCs) is endogenously determined by its factor endowments; the firm in the LDCs that enters the capital-intensive, advanced industry in the developed countries (DCs) would be nonviable owing to the relative scarcity of capital in the LDCs factor endowments; whether the industrial structure matches with the factor endowment structure or not is the fundamental cause to explain differences in economic performance among the LDCs.

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Paper provided by East Asian Bureau of Economic Research in its series Development Economics Working Papers with number 22710.

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Date of creation: Jan 2007
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Handle: RePEc:eab:develo:22710
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  17. Kuznets, Simon, 1971. "Modern Economic Growth: Findings and Reflections," Nobel Prize in Economics documents 1971-2, Nobel Prize Committee.
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