Dual Economy Research Articles

Inequality, openness, and growth through creative destruction

We examine how inequality and openness interact in shaping the long-run growth prospects of developing countries. To this end, we develop a Schumpeterian growth model with heterogeneous households and non-homothetic preferences for quality. We show that inequality affects growth very differently in an open economy as opposed to a closed economy: If the economy is close to the technological frontier, the positive demand effect of inequality on growth found in closed-economy models may be amplified by international competition. In countries with a larger distance to the technology frontier, however, rich households satisfy their demand for high quality via importing, and the effect of inequality on growth is smaller than in a closed economy and may even be negative. In such case trade gives rise to the endogenous emergence of a ‘dual economy’ where some domestic sectors are highly innovative while others are lagging behind.

Assessing the Economic Impact of Coffee Farming on Rural Communities in Colombia

Purpose: The aim of the study was assessing the economic impact of coffee farming on rural communities in Colombia Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries. Findings: Assessing the economic impact of coffee farming on rural communities in Colombia reveals significant findings. Coffee farming is a major source of employment and a primary contributor to household income in these areas, supporting the economic stability of numerous families. Moreover, the coffee industry’s demand for labor not only boosts local employment rates but also contributes to regional economic development through the generation of export revenues. Unique Contribution to Theory, Practice and Policy: Dependency theory, livelihoods approach & dual economy model may be used to anchor future studies on assessing the economic impact of coffee farming on rural communities in Colombia. Implement CBPR methods to involve coffee farmers in the research process, ensuring that their firsthand experiences and insights inform the study. Advocate for policies that support fair trade practices.

Nature’s decline and recovery — Structural change, regulatory costs, and the onset of resource use regulation

Many renewable natural resources have been extracted beyond sustainable levels. While some resource stocks have recovered, others are still over-extracted, causing substantial economic losses. This paper develops a model motivated by empirical facts about resource use and regulation to understand these patterns. The model is a dynamic model of a dual economy with technological progress, structural change, and costly resource regulation. Based on this model, we show that technological progress explains the initial increase in resource use. Technological progress also induces structural change and a decline in resource users. While the declining number of resource users does not directly lead to resource recovery, it does reduce regulatory costs, paving the way for resource regulation and recovery. Our results show that although technological progress can contribute to resource degradation, it also helps resource recovery through reduced regulatory costs. Our results suggest further that a temporal use beyond sustainable levels can be socially optimal until regulatory costs fall below the benefits of regulation.

Does Regulatory Quality Reduce Informal Economy? A Theoretical and Empirical Framework

Italy is characterised by a significant dualistic economy, which also includes an extensive underground sector. The aim of this study is to analyse the relationship between the quality of legislation and irregular employment in Italy. Our contribution consists of two components: the theoretical modelling of the impact of regulatory quality on the informal economy and the empirical validation of the predictions of the theoretical model using data from the Italian region between 2004 and 2019. The results confirm the theoretical and empirical arguments in favour of the need for laws to curb the informal sector. The regions with the highest institutional standards tend to have a lower percentage of irregular workers that fosters and encourages the legality of the labor market. Some robustness tests back up the main conclusions which show how important following rules is for strengthening the internal economy and for lowering the number of illegal workers.

Human Capital, Migration and Remittance in Developing Countries: A General Equilibrium Approach

The paper develops a three-sector model with Harris–Todaro type unemployment to examine the consequences of an increase of migrants’ human capital on remittance within a small open dual economy. By using indirect utility functions, the paper endogenizes the remittance. The theoretical analysis shows that an increase of human capital level of rural migrants increases their income, urban consumption and remittance, while its effect on the proportion of remittance in migrants’ income depends on the impact of remittance on agricultural production.

Migrants’ Remittances, Agricultural Producer Service and Wage Inequality in the Dual Economy

Previous literature finds that migrants’ remittance narrows down wage inequality between skilled and unskilled labor, since the external funds flow into the rural area and raise wage rate of unskilled labor. However, it should be noted that the structure of agricultural production has also changed and small-scale agriculture utilizes remittance to purchase producer service that could substitute unskilled labor. The paper establishes three-sector general equilibrium models and theoretically analyzes the impact of an increase in remittance rate on wage inequality between skilled and unskilled labor. In the primary stage of service sector, an increase in remittance rate reduces both skilled and unskilled wage rate and has an ambiguous impact on wage inequality. The obtained result of wage inequality is robust even when we extend the basic theoretical model by considering the popularization stage of service sector.

Employment effects of minimum wages in a dual economy: Evidence from Thailand

This study employs both theoretical insights and empirical techniques to investigate the impact of a minimum wage increase on employment when minimum wage coverage is incomplete. Previous empirical studies on this topic have found conflicting results: while some find the share of the covered sector decreases, some find it increases. In the theoretical part, we extended the classic two-sector model and found both scenarios can occur depending on the parameters of the economy. Empirically, using as a natural experiment a novel minimum wage policy in Thailand whereby 40 percent of workers were not covered by the legislation, we found that one percent increase in the minimum wage reduced low-skilled employment in the covered sector by 0.1–1.1 percent and increased employment in the uncovered sector. The official unemployment rate also decreased because the rise in the minimum wage lowered the probability of covered employment to such a large extent that workers instead turned to the uncovered sector.

Challenging the Growth Paradigm: A Multifaceted Examination of Development, Disparity, and Environmental Concerns in Modern Economies

In the intricate landscape of developmental dynamics, understanding growth requires a deep dive into diverse factors, including urban-rural imbalances, dual economies, environmental ramifications, and gender disparities. Historically, colonial policies often favored urban development, exacerbating rural-urban divides, as seen in movements like Brazil's Landless Workers'. Furthermore, the dichotomy in economic structures elevates societal equity challenges, especially between traditional and modern sectors. As exemplified by India's Chipko movement, the environmental aftermath of colonial resource extraction lingers. The gender discourse has matured, with campaigns such as #MeToo spotlighting workplace equity. China, post-1976, epitomizes the potential and pitfalls of swift industrialization, providing invaluable insights for emerging economies. Given these multifaceted considerations, the essence of growth has become a pivotal research topic today. Dissecting the nuances of development encompasses disparities, regional variances, and environmental hurdles, weaving a complex tapestry that underscores the criticality of comprehensive developmental evaluations. As nations evolve, differences intensify, leading to significant socio-environmental challenges. This essay unravels these complexities, merging historical insights with present-day implications and setting the stage for future discourses in development.

Emulating Empires: Caribbean Free Ports, Economic Dualism, and European Imperial Rivalry, c. 1670s–1760s

ABSTRACTWhen the Dutch West Indies Company (WIC) established the free port of Willemstad, Curaçao after 1674, they launched a model for economic competition that other European empires would emulate. Within a century, the Danish, Spanish, British, and French all established their own Caribbean free ports. Emulation, however, was not replication. This article argues that while the expansion of free ports into different Caribbean empires generated similar forms of economic dualism (prohibitive commercial systems in certain locales with more-open ones in others), they all served varying purposes. The Dutch and Danish maintained or expanded their free-port systems and utilised strategic neutrality to remain active players within an increasingly competitive economic arena. Britain wanted to extend its commercial empire by making foreign realms dependent on its trade. France sought to pacify recalcitrant planters desperate for reliable provisioning. Finally, Spain enacted free ports in Santo Domingo to supply and encourage settlement in a region threatened by French encroachments. Thus, although these empires all established free ports in strategic locales and jealously emulated each other, they did so with unique political-economic aims in mind. Meanwhile, merchants, enslaved Africans, sailors, settlers, and European intellectuals employed Caribbean free ports to accomplish their own ends as well.

The dual economy, climate change, and the polarization of American politics

This article explores two questions. What generates the political division over climate change policy in the United States? How is the division over climate change policy related to the broader polarization of contemporary American politics? I argue that the geographies of America’s dual economy—the knowledge economy and the carbon economy—and exposure to the climate crisis intersect to generate a new axis of conflict, which I call the carbon–climate cleavage. This cleavage produces political division over climate change and provides materialist elements that accompany the sociocultural factors that shape contemporary polarization. I demonstrate the existence of the cleavage and its impact using data on economic geography, political attitudes on climate change policy, and support for Trump in the 2016 and 2020 presidential elections. The empirical analysis indicates that carbon economy communities oppose climate change policy and support Trump, while knowledge economy residents support climate change policy and oppose Trump.

India: Developmental challenges faced by a dual economy

AbstractWith a population of over 1.4 billion surpassing China's in 2023, India has now become the world's most populous country. Despite its robust IT and service sectors propelling it to become the fifth‐largest economy, India still grapples with low GDP per capita and significant poverty. The paradoxical nature of India's development necessitates a closer examination of its governance. Over 90% of the Indian population works outside the purview of formal democratic institutions and capital‐intensive economic sectors. Challenges arise from the need to sustain a large poor population with limited resources while catering to the formal sector that generates more than half of its GDP. India's governance exhibits a deep mismatch between its institutional design, politics and developmental needs. This article explores the duality of informal and formal sectors underlying challenges in Indian governance by way of the Berggruen Governance Index.

THIRLWALL’S LAW AND NEW-DEVELOPMENTALISM: WHAT ARE THE LIMITS FOR LONG-RUN GROWTH?

The aim of this article is to argue that New-Developmentalism —understood as an approach to the deep determinants of economic development in which macroeconomic policy regime has a key role in explaining the long-term growth differentials among countries, notably middle-income countries— is not incompatible with Balance of Payments Constrained Growth models pioneered and developed by Professor Thirlwall, but can be considered an extension and improvement of such a class of models in order to incorporate structural change induced by exchange rate overvaluation as the main limit of long-run growth for middle-income dual economies, thereby explaining the so-called middle-income trap.

Research on the Family Income Gap in China

This paper will start with an investigation of the current consumption situation (consumption structure) and the consumption concept of college students at Chongqing University, and investigate the family income, the monthly living expenses of students (whether there is a work study program) and the current loan situation of college students. Based on this problem, this study plans to use the questionnaire and literature survey methods to investigate the income gap of the families behind the college students through the consumption survey. Through the investigation and sorting of consumption, we can see the family income reflected thereby, and compare the gap between the rich and the poor reflected from different angles. This paper further considers the current consumption situation of college students and what consequences the income gap has brought or will bring, as well as the reasons affecting the income gap. At this stage, particular attention should be paid to the issue of urban-rural income disparity and inequality. In the context of Chinas dual economy, household income inequality mainly comes from inequality between urban and rural areas. Effectively improving the income level of rural residents and narrowing the urban-rural gap are the main targets for achieving common prosperity. To achieve common prosperity, first, improve the income distribution system and the macro income distribution structure. Second, increase the income of low-income groups and accelerate the formation of an olive-shaped structure. Third, improve the social security system to alleviate the challenge of excessive income disparities among groups. Fourth, promote the equalization of basic public services in urban and rural areas, and address income inequality. Fifth, increase public investment in human capital and enhance social mobility.

Does the lack of resources matter in a dual economy: Decoding MSMEs productivity and growth

In this paper, we examine the factors influencing labor productivity and sales growth among micro, small, and medium-sized enterprises (MSMEs) within a middle-income economy. Although MSMEs play a pivotal role in employment within middle-income countries, they often display a lower economic value-added, pointing to underlying challenges in labor productivity. Using a longitudinal dataset of firms and employing both quantile regressions and machine learning techniques, we find that SMEs led by older, male, and more seasoned managers tend to exhibit higher productivity. Similarly, companies with a larger proportion of highly educated employees, affiliation to business groups, and engagement in R&D activities demonstrate superior performance. Finally, to improve the performance of MSMEs in developing economies, our results suggest that implementing targeted, well-defined vertical public support programs would be an effective public policy approach.

Modern services led growth and development in a structuralist dual economy: Long‐run implications of skilled labor constraint

AbstractMotivated by the South Asian experience, this paper examines the role of expansion of skilled labor force for modern services led growth and development in economies with low average educational attainment. The model economy consists of two capital‐using sectors—a service sector that employs only skilled labor and an industry sector that does not require skilled labor. The service sector represents modern skilled‐labor intensive services whereas the industry sector represents a typical South Asian industry. Supply of unskilled labor is unlimited but skilled labor is relatively scarce and grows at a finite rate. Increase in the skill premium only partially explains growth of skilled‐labor supply while the rest depends on autonomous factors, which may be influenced by education policies of the government. The main result specifies a set of necessary and sufficient conditions for existence of a unique steady state characterized by balanced sectoral growth at a rate determined by the autonomous part of skilled labor growth. A low wage share and stagnant investment conditions in the industry sector are conducive for both existence and local stability of this steady state. The model shows that supply‐side factors may completely determine steady state growth rates in structuralist models despite presence of unemployed resources.

The dual economy paradox: the case of Bangladesh and India

The dual economy paradox: the case of Bangladesh and India

ZAMBIA'S STRATEGIC ROADMAP FOR THRIVING AQUACULTURE MICRO, SMALL AND MEDIUM ENTERPRISES

At independence in 1964, Zambia inherited a dualistic economy characterized by foreign-owned industries, with the copper industry dominating and rural small-scale peasants, most of whom migrated to the urban areas in search of formal employment. From 1968, the Zambian government took over majority control (‘zambianisation’ or nationalisation) in some of the foreign-owned industries, but the rate of employment was not sufficient to absorb the rapidly expanding urban population resulting in a lot of people remaining unemployed. A decline in international copper prices in the early 2000’s brought a recession to the Zambian economy resulting in the failure of the nationalised industries thereby ousting more people out of formal employment. Lack of employment and the call for diversification away from copper mining required most Zambians to find alternative means of survival, hence the establishment of micro, small and medium enterprises (MSMEs). A reduction in naturally occurring water bodies brought about by climate change have hampered fishing, however, the country has other favourable conditions such as good soil formation, availability of borehole water and an ideal climate which can support aquaculture. The Zambian government has been supportive of the development of aquaculture MSMEs and the said government efforts are the focus of this article.

Elite agency in the growth of offshore business services in Romania

Processes of outsourcing and offshoring have driven the changing spatial divisions of labour through foreign investment and development of peripheral regions into key offshore destinations for business services. This paper focuses on the role of elites, transnational and domestic, in the transformation of Romania into a major business services offshoring location in Central Eastern Europe (CEE) over the last two decades. The paper reveals the role of elite agency in connecting domestic resources to business services global production networks (GPNs) in order to drive domestic institutional transformation. A lot has been written about the agency of labour; yet there is a gap in our understanding of the agency of elites, specifically how transnational elites articulate with other elites at the national-, meso- and micro-level and produce institutional changes. Drawing on literature on enclave creation and dual economies, the paper illustrates how the alliance between domestic and transnational elites shaped transformation across the sector by implementing labour market flexibilisation and by crafting a ‘sound’ business environment in terms of infrastructure, investment incentives and bureaucratic framework to emulate institutional conditions of the home country. The development of the Romanian business services sector into an ‘enclave economy’ has become dependent on collaborative networks with domestic universities and intermediary organisations, which played a key role in facilitating foreign investment attraction and linking domestic resources to the needs of multinational firms.

Challenges of Informal Cross-Border Trade Facilitation in Tanzania: Lessons from Kigoma Border

ABSTRACT This study investigates the challenges of an informal cross-border trade (ICBT) facilitation initiative in Tanzania. Specifically, it identifies the regulatory framework governing cross-border trade (CBT), and investigates the challenges of facilitating ICBT. It is based on in-depth interviews with 51 officials from 10 trade-regulating agencies and 47 cross-border traders in Kigoma, Tanzania. The findings reveal that ICBT is largely attributed to the stringent regulatory requirements and high costs of trading via formal routes. Although different trade facilitation measures have been taken, several challenges of CBT facilitation were identified, namely: limited awareness of the existing initiatives; inadequate border facilities; lack of a mechanism to escalate traders’ challenges to the relevant agencies; limited resources; ineffective coordination; hesitation of traders to utilise trade facilitation initiatives; and informality of traders in the neighbouring countries. While we support the rational exit and dual economy views that traders operate informally to avoid the cost of formalisation, we show that trade facilitation measures adopted in the context of the World Trade Organisation (WTO) do not offer traders sufficient incentives to formalise. Accordingly, we suggest a trade regime consisting of simplified documentation and reduced trade costs to effectively accommodate ICBT in the international trading system.

Social capital and characteristics of economic dualism as determinants of regional resilience

ABSTRACT This paper aims to delve into the multidimensionality and complexity of the concept of resilience by exploring two issues. Firstly, it investigates the role of social capital through the social participation and cooperatives in the economic resilience of Greek regions providing novel findings for the social resilience of the country. Secondly, it gains an in-depth understanding about the dualistic nature of resilience as it is related to a dynamic export profile of regions in tandem with one that is more traditional or less exposed to the market. This raises questions about the risk of specific regions being trapped in a protective environment providing policy implications. The measurement of the resilience capability of regions is based on both the time of exposure and the intensity of distress associating thus the business cycles of regions with their resilience capability. Additionally, the analysis studies the full period of recession and recovery, which lasted until the next crisis began (COVID-19 pandemic), allowing the investigation of the configurations formed and of the existence of different stages inside the recovery period.