Simulation of Growth Traps in a Dual Economy

LONDON SILVIA

Anales de la Academia Nacional de Ciencias de Buenos Aires

Academia Nacional de Ciencias de Buenos Aires

Lugar: Buenos Aires; Año: 2006 p. 221 - 228

One of de most crucial distinguishing features of less developed countries is the presence of dualisms due the coexistence of a capitalistic sector and a non capitalistic one. A. Lewis (Lewis 1954) analysed this topic in the context of a  basic model of a dual economy in which growth and capital accumulation occur under the assumption of unlimited labour supply.  This assumption arises from the fact that the majority of under developed countries exhibits a large population in contrast to their low endowments of capital and natural resources. Then, in the subsistence sector “the marginal productivity of labour is depreciable, null or negative”[1]. As a conclusion the wage which the capitalists pay is very low and constant in the first stage of development. The second fundamental assumption in Lewis´model is related with the process of industrialization: the capitalists invest their entire profits, expanding the industrial activity of the modern sector and the workers demand. Without considering the behaviour of  to the labour market in the model, the goal of this work is to analyse the results when the assumption of a different investment decision of invest is made. In particular, we consider that a capitalist invests according  to his or her analysis about his or her demand and his or her profits at the face of the average profits in the economy. First we present briefly the main features of the Lewis model, and then we incorporate the investment rule proposed. [1] Arthur Lewis Economic development with unlimited supplies of labour. Manchester School, 1954.