Template-type: ReDif-Paper 1.0
Author-Name: Lavopa A. 
Author-workplace-name: UNU-MERIT
Title: Catching up and lagging behind in a balance-of-payments-constrained dual economy
Abstract: The success of nations in the path towards economic development hinges  heavily on the emergence and dynamism of a modern sector capable of  simultaneously absorbing an increasing share of the labour force while  reducing the technological gap with the worlds frontier. Failure to do  so would eventually lead the economy to low- or middle- income traps, in  which only a small fraction of the population would benefit from the  gains of economic growth and technological progress.   Building on previous contributions from Post-Keynesian,  Neo-Schumpeterian and Latin-American Structuralism literature, this  paper sets up a theoretical model of catching-up among nations aimed at  formalizing this idea by exploring the dynamic interactions between  structural change and technological upgrading in the process of economic  development. The focus of the model is on a representative nation of  the South that is characterized by having i a dual structure i.e., a  large share of labour force working on low-productive-traditional  activities that coexists with a small fraction of workers employed in  modern activities; ii a high degree of technological backwardness in  the modern activities; and iii a binding restriction on the external  accounts. Under these circumstances, the dynamic behaviour of two key  variables will determine the success or failure of this economy over  time the share of labour in the modern sector and the relative stock of  technological knowledge of the modern sector compared to that of the  world technological leader. Depending on initial conditions and  underlying parameters, the southern economy would be attracted towards  four different equilibrium points, each of them entailing extremely  different implications in terms of long-run development.   After analysing the dynamic properties of the model, simple simulations  are implemented in order to illustrate a number of structural  trajectories that might shed new light on the complex forces acting  behind the success or failure of economic development.
Keywords: Economic Growth of Open Economies; Macroeconomic Analyses of Economic Development; Technological Change: Choices and Consequences; Diffusion Processes; One, Two, and Multisector Growth Models; 
Classification-JEL: O11; O33; O41; F43; .
Series:  Working Papers
Creation-Date: 2014
Number: 042
File-URL: http://pub.maastrichtuniversity.nl/9b65ec4c-bb99-432a-8ce1-9991e55ae2f4
File-Format: application/pdf
File-Size: 899583
Handle: RePEc:unm:unumer:2014042