south east asia development 2b pptx

2b: Growth and structural
change

Overview










Growth and structural change

inevitably !




"#

$

$

$%&!'!(

$%!$!(
)

*
+
,
-
Growth & structural change: stylized facts

.!
!

/relative%($
 

"01

2%32$415(

21

#$4

.! 6
!76$

$4
 !

#
8
Tools: sectoral producon funcons


9Y = F(K, L)

%(Y
j
= F
j
(K
j
, L
j
)!j

"#%(

:

/



0 7

; $$<
production possibilities frontier
=


Γ
=
Π

ϕ
Ψ
ϕ
ϕ
=1
Ν
∑
=
Π
ϕ
Φ
ϕ
(
Κ
ϕ
Λ
ϕ
)
ϕ
=1
Ν
∑


Λ
,
Κ


Λ

=
Λ
1
+
Λ
2
+
Λ
3

##:
9;'!9&
>'!>&! 

?
A A
M
M
Equal rates of K and L accumulaon
OR Equal rates of technical progress
in both sectors
Faster rel. rate of K accumulaon
OR faster technical progress in
manufacturing sector

Agriculture
Manufacturing
‘Balanced growth’ line - no str. change
C
D

Balanced growth: equal rates of K and L accumulation
> equal growth rates of ag. & mfg. sectors

Agriculture
Manufacturing
‘Balanced growth’ line - no str. change
C
D
Rise in GDP, measured in terms
of manufactures at constant
prices
)
Agriculture
Manufacturing
C
E
Unbalanced growth: faster rate of K accumulaon

faster relave growth rate of M sector.
• What happens to the composion of GNP?
Price changes and structural change
•
Exogenous4

0 7:p
A
’ > p
A
, p
A

’/p
M
> p
A
/p
M

9 
•
Endogenous
–
019!$
7
–
"77@
4!p
A
/p
M

•
Policies 70 71t
M

p
M
%At
M
( > p
M

, p
A
/p
M
%At
M
( B p
A
/p
M
*
+
Agriculture
Manufacturing
C
E
Is full employment constraint realisc in a
poor economy?

$CD
 

9

;CD

0 7E!44
44

35

,
The dual economy model

0 7$
7

$$7

F74average!
marginal !G&

$7

/H !unchanged 7%
2$4(

I"#J
-
Industry wage
Wage in ag.
Subsistence ag
wage = AP(L)
Total ag.output
(read from right
to left)
Labor in industry
Labor in ag.
Labor in ag.
f L
1

A


g h 0
Industry labor demands
D
1
L
1
M
Y
A
=
Industry wage
Wage in ag
Subsistence ag
wage
Total ag.output
(read from right
to left)
Labor in industry
Labor in ag.
Labor in ag.
f L
1
A
L
2
A
g h 0

Industry labor demands
D
1
L
1
M
D
2
L
2
M
Y
A
Y
A
?
Industry wage
Wage in ag
Subsistence ag
wage
Total ag.output
(read from right
to left)
Labor in industry
Labor in ag.
Labor in ag.
f L
1
A
L

2
A
g L
3
A
h 0
Industry labor demands
D
1
L
1
M
D
2
L
2
M
D
3
L
3
M
Y
A
Y
A
Y
A
Thoughts on dual economy


3/5735@35$


F09%K4@L!=+?(

9735$4
%74($4!

"

I4"0J

I$$J

:$H$!!

The neoclassical two sector model

365&

$$7

A stagnant agricultural sector!77!
!4
$6

.ndustry will develop successfully 




.$!
$ 

K$$
$

)
Industry wage
Wage in ag
Subsistence ag
wage
Total ag.output
(read from right
to left)
Labor in industry
Labor in ag.
Labor in ag.
f L
1
A
L
2
A
g L
3
A
h 0
Industry labor demands
D
1

L
1
M
D
2
L
2
M
D
3
L
3
M
Y
A
Y
A
Y
A
Prying open the Lewis and Solow models

I6 
4J

"
J

.

LJ 


3E5

" J

#


"4
*