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Education, inequality, and development in a dual economy

  • Yuki, Kazuhiro

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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39062.

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Date of creation: 24 May 2012
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Handle: RePEc:pra:mprapa:39062
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  1. Yuki, Kazuhiro, 2007. "Urbanization, informal sector, and development," Journal of Development Economics, Elsevier, vol. 84(1), pages 76-103, September.
  2. Christopher Colclough & Geeta Kingdon & Harry Patrinos, 2010. "The Changing Pattern of Wage Returns to Education and its Implications," Development Policy Review, Overseas Development Institute, vol. 28(6), pages 733-747, November.
  3. Marco Alfo & Giovanni Trovato & Robert J. Waldmann, 2008. "Testing for country heterogeneity in growth models using a finite mixture approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(4), pages 487-514.
  4. Danyang Xie & Ping Wang, 2002. "Activation of a Modern Industry," IMF Working Papers 02/15, International Monetary Fund.
  5. Kazuhiro Yuki, 2005. "Sectoral Shift, Wealth Distribution, and Development," Development and Comp Systems 0509001, EconWPA.
  6. Eric Hanushek & Ludger Woessmann, 2008. "The Role of Cognitive Skills in Economic Development," Discussion Papers 07-034, Stanford Institute for Economic Policy Research.
  7. Psacharopoulos, George & Patrinos, Harry Anthony, 2002. "Returns to investment in education : a further update," Policy Research Working Paper Series 2881, The World Bank.
  8. Proto, Eugenio, 2007. "Land and the transition from a dual to a modern economy," Journal of Development Economics, Elsevier, vol. 83(1), pages 88-108, May.
  9. Dietrich Vollrath, 2009. "The dual economy in long-run development," Journal of Economic Growth, Springer, vol. 14(4), pages 287-312, December.
  10. Eric A. Hanushek & Ludger Woessmann, 2009. "Do Better Schools Lead to More Growth? Cognitive Skills, Economic Outcomes, and Causation," CESifo Working Paper Series 2524, CESifo Group Munich.
  11. repec:oup:restud:v:60:y:1993:i:1:p:35-52 is not listed on IDEAS
  12. Deininger, Klaus & Olinto, Pedro, 2000. "Asset distribution, inequality, and growth," Policy Research Working Paper Series 2375, The World Bank.
  13. Ann Owen & Julio Videras & Lewis Davis, 2009. "Do all countries follow the same growth process?," Journal of Economic Growth, Springer, vol. 14(4), pages 265-286, December.
  14. Paap, Richard & Franses, Philip Hans & van Dijk, Dick, 2005. "Does Africa grow slower than Asia, Latin America and the Middle East? Evidence from a new data-based classification method," Journal of Development Economics, Elsevier, vol. 77(2), pages 553-570, August.
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