A Development Model of a Dualistic Economy: The Italian Case

Abstract

The paper sets out a macrodynamic model of the Italian economy describing the supply and demand for goods, the distribution of income, the balance of payments on current accounts and the current account budget of the public sector. The model focuses mainly on the impact of the dualistic character of the Italian economy on the labour market, inflation, the process of capital formation and its cyclical behavior. Quantitative and qualitative analysis have been carried out on the model. This has been estimated as a continuous time model, using the full information maximum likelihood method. We have also analysed its stability properties and its predictive performance, and performed some experiments of sensitivity analysis. Finally, some policy simulations over the sample period are given.