A hump-shaped transitional growth path as a general pattern in long-run development

Abstract

Long-run development is defined as the income transition between the traditional and the modern steady state, in which the speed of the transition is low near the two steady states but high and volatile in between them. This transition implies a hump-shaped relation between the level of per capita income and its growth rate. A hump-shaped growth-income path can be simulated with a two-sector growth model, in which the traditional sector is gradually replaced by the modern sector. Kernel regressions reveal a noisy but robust hump-shaped relation between the growth rate and the level of per capita income in stacked cross-country panel data.