Template-type: ReDIF-Paper 1.0
Author-Name: Nomaler, Önder
Author-Email: nomaler@merit.unu.edu
Author-Workplace-Name: UNU-MERIT, Maastricht University 
Author-Name: Spinola, Danilo
Author-Email: spinola@merit.unu.edu
Author-Workplace-Name: UNU-MERIT, Maastricht University, Birmingham City
	 University, and University of Johannesburg
Author-Name: Verspagen, Bart
Author-Email: b.verspagen@maastrichtuniversity.nl
Author-Workplace-Name: UNU-MERIT, Maastricht University
Title: Demand-led industrialisation policy in a dual-sector small balance of payments 
	 constrained economy 
Abstract: This article models the process of structural transformation and
	 catching-up in a demand-led Southern economy constrained by its balance
	 of payments. Starting from the Sraffian Supermultiplier Model, we model
	 a dual-sector small open economy divided between traditional and modern
	 sectors that interacts with a technologically advanced Northern economy.
	 We propose two (alternative) autonomous elements that define the growth
	 rate of this demand-led economy: government spending and exports.
	 Autonomous government spending plays a central role in stimulating
	 demand, and thus is a source of growth of the modern sector.
	 Productivity adjusts to the growth rate of output, given by the growth
	 rate of autonomous expenditure. Drawing from the Structuralist
	 literature, the technologically laggard Southern economy catches up by
	 absorbing technology from the Northern economy, potentially closing the
	 technology gap. The gap affects the income elasticity of exports,
	 bringing a supply-side mediation to the growth rates in line with the
	 Balance of Payments Constrained Model. We observe that a demand-led
	 government policy plays a central role in structural change, pushing the
	 modern sector to a take-off. Also, the economy is stable in terms of
	 capacity utilisation and modern sector employment. 
Classification-JEL: O41, E12, E61
Keywords: Industrialisation, Catching-up, Balance of Payments, Sraffian
	 Supermultiplier
Series: UNU-MERIT Working Papers
Creation-Date: 20211018
Number: 2021-038
File-URL: https://unu-merit.nl/publications/wppdf/2021/wp2021-038.pdf
File-Format: application/pdf
File-Size: 275 Kb
Handle: RePEc:unm:unumer:2021038