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Education, inequality, and development in a dual economy

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  • Yuki, Kazuhiro

Abstract

In the post-WWII era, most developing economies had decent economic growth, but, with current growth trends, the great majority of them are unlikely to transform into developed economies in near future. In these economies, the dual economic structure, the coexistence of the modern/formal sector and the traditional/informal sector, is persistent. The educational level of the population increased greatly, but the growth of the skill level, especially when measured by the share of high-skill workers, is relatively modest. Wage inequality between workers with basic skills and with advanced skills rose over time, while the inequality between workers with and without basic skills fell greatly. In order to understand these facts, this paper develops a dynamic dual-economy model and examines how the long-run outcome of the economy depends on the initial distribution of wealth and sectoral productivity. It is shown that, for fast transformation into a developed economy, the initial distribution must be such that extreme poverty is not prevalent and the size of ”middle class” is enough. If the former is satisfied but the latter is not, which would be the case for many developing economies falling into ”middle income trap”, the fraction of workers with basic skills and the share of the modern sector rise, but inequality between workers with advanced skills and with basic skills worsens and the traditional sector remains, consistent with the above-mentioned facts.

Suggested Citation

  • Yuki, Kazuhiro, 2012. "Education, inequality, and development in a dual economy," MPRA Paper 39062, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:39062
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:ecmode:v:64:y:2017:i:c:p:141-152 is not listed on IDEAS
    2. Yuki, Kazuhiro, 2015. "Modernization, Social Identity, and Ethnic Conflict," MPRA Paper 67316, University Library of Munich, Germany.
    3. Adnan Efendic & Naida Trkic-Izmirlija, 2013. "Effects of the global economic crisis and public spending on income distribution in Bosnia and Herzegovina," wiiw Balkan Observatory Working Papers 108, The Vienna Institute for International Economic Studies, wiiw.

    More about this item

    Keywords

    dual economy; modernization; education; wealth distribution;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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