Giovanni Valensisi
Kaldorian underemployment and the big push

Abstract:We introduce and analyze a Ricardo-Viner-Jones model, in which agriculture operates under diminishing returns, while industry is characterized by increasing returns to scale, modelled through a Kaldor-Verdoorn coefficient linked to the external effects of capital accumulation. Besides, the labor market is asymmetric, in that industrial wages are set according to efficiency considerations à la Akerlof, while agricultural wage clears the market. Such a dualistic characterization of the labor market implies that for low levels of capital stock the economy displays positive (though declining) elasticity of labor supply, coupled with an endogenous wage gap across sectors; on the contrary, once sufficient capital has been accumulated, the system features a mature phase in which a single uniform wage rate prevails in both sectors and the elasticity of labor supply is null. Under plausible parametrization, we prove that the system may exibit multiple equilibra, and precisely (i) a locally stable equilibrium with zero capital, in which all labor force is employed in agriculture; (ii) an unstable low development equilibrium with positive capital stock; (iii) an asymptotically stable equilibrium of high development, in which industrialization has taken place and manufacturing coexists with agriculture. Finally we show that technical progress (intended here as parametric increases of sector-specific TFP) tends to reduce the basin of attraction of the purely agrarian equilibrium, and possibly to increase the steady-state level of capital stock for the equilibrium of full industrialization.

JEL: O11, O14,O41.
Keywords: Poverty trap, big push, dual economies.



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