Journal of Economic Growth, 2009, 14(4), pp. 287-312.

Abstract

This paper provides a dynamic model of the dual economy in which differences in productivity across sectors arise endogenously. Rather than relying on exogenous price distortions, duality arises because of differences between sectors in the separability of their fertility and labor decisions. The model demonstrates how a dual economy will originate, persist, and eventually disappear within a unified growth framework. An implication of the model is that agricultural productivity growth will exacerbate the inefficiencies of a dual economy and produce slower overall growth than will modern sector productivity improvements.