Abstract
This section provides an introduction to two sector growth models. We begin with a model where a single good is produced using traditional means of production. In the traditional sector, production is carried out by households using land (natural resources) and labor. There are no firms or factories that rely on heavy plant and equipment and modern production methods to produce goods. This setting can be used to identify the conditions necessary for a modern sector to appear that would begin an “industrial revolution,” as in Hansen and Prescott (2002), helping to explain G8 and G9.
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Notes
- 1.
The East consists of China , Pakistan, India, Bangladesh, Indonesia, Japan , Burma, the Philippines, South Korea, Taiwan, and Thailand. The West consists of Western European countries and their ethnic offshoots: Canada, Mexico, USA, Argentina, Brazil, Chile, Australia, and New Zealand.
- 2.
Human capital and fertility are treated exogenously in this chapter. We add endogenous schooling and fertility back into the model in Chap. 7.
- 3.
To review eigenvalues and eigenvectors consult the technical appendices of Azariadis (1993) or an undergraduate linear algebra textbook.
- 4.
This need not be the only interpretation because primary products such as wood and coal might also be included.
- 5.
For further discussion and application of the energy balance relationship see Abdus (2007).
- 6.
Establishing an endogenous intergenerational connection between child nutrition and adult height is difficult. In the nineteenth century, adult height in England showed no trend, despite a rise in per capita income. This puzzling observation has given rise to a literature that identifies a variety of factors that potentially affect adult height (Kirby (1995), Komlos (1998), and Voth and Leunig (1996)). Modern studies also reveal the complex determination of adult height. For example, food intake is not strongly correlated with height (Graham et al. (1981), Ashworth and Millward (1986), and Mitchell (1962)).
- 7.
In a complete general equilibrium analysis, there would also be a reduction in k as workers move into the modern sector for a given aggregate capital stock. For an analysis of the structural transformation that depends heavily on the demand side effects stemming from subsistence constraints see Herrendorf et al. (2014).
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Das, S., Mourmouras, A., Rangazas, P. (2018). Two Sector Growth Models. In: Economic Growth and Development. Springer Texts in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-89755-4_6
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