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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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File URL: http://www.eaber.org/node/22710
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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
Contact details of provider: Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
Web page: http://www.eaber.org

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  1. Gino Gancia & Fabrizio Zilibotti, 2005. "Horizontal innovation in the theory of growth and development," Economics Working Papers 831, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Guofu Tan & Justin Yifu Lin, 1999. "Policy Burdens, Accountability, and the Soft Budget Constraint," American Economic Review, American Economic Association, vol. 89(2), pages 426-431, May.
  3. Kongsamut, Piyabha & Rebelo, Sérgio & Xie, Danyang, 1997. "Beyond Balanced Growth," CEPR Discussion Papers 1693, C.E.P.R. Discussion Papers.
  4. Daron Acemoglu & Veronica Guerrieri, 2008. "Capital Deepening and Nonbalanced Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 116(3), pages 467-498, 06.
  5. Kuznets, Simon, 1971. "Modern Economic Growth: Findings and Reflections," Nobel Prize in Economics documents 1971-2, Nobel Prize Committee.
  6. Jones, Larry E. & Manuelli, Rodolfo E., 2005. "Neoclassical Models of Endogenous Growth: The Effects of Fiscal Policy, Innovation and Fluctuations," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 1, pages 13-65 Elsevier.
  7. Michael Funke & Holger Strulik, 2000. "On Endogenous Growth with Physical Capital, Human Capital and Product Variety," Quantitative Macroeconomics Working Papers 20004, Hamburg University, Department of Economics.
  8. Chang-Tai Hsieh & Peter Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," Working Papers 09-04, Center for Economic Studies, U.S. Census Bureau.
  9. Larry E. Jones & Rodolfo Manuelli, 1990. "A Convex Model of Equilibrium Growth," NBER Working Papers 3241, National Bureau of Economic Research, Inc.
  10. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
  11. Chol-Won Li, 1998. "Endogenous Growth Without Scale Effects: Comment," Working Papers 9819, Business School - Economics, University of Glasgow.
  12. Hernando Zuleta & Andrew T. Young, 2007. "Labor's shares - aggregate and industry: accounting for both in a model of unbalanced growth with induced innovation," DOCUMENTOS DE TRABAJO 003105, UNIVERSIDAD DEL ROSARIO.
  13. Segerstrom, Paul S, 1998. "Endogenous Growth without Scale Effects," American Economic Review, American Economic Association, vol. 88(5), pages 1290-1310, December.
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