Two-sector Economy Research Articles

Macrostructural Analysis of the Dynamics of the Two-Sector Economy

Macrostructural Analysis of the Dynamics of the Two-Sector Economy

Sectoral dynamics of industrial policy in a two-sector economy: the case of Korea’s heavy and chemical industry (HCI) promotion (1973–1979)

This study explores the impact of state’s industrial policy on sectoral capacity utilization and growth in total output in the context of the Korea’s Heavy and Chemical Industry (HCI) promotion (1973–1979). Using a Kalecki-Steindl framework within a two-sector open economy, the study first finds that primary industrial policy instruments—preferential interest rates and export promotion regime—have a positive effect on capacity utilization (aggregate demand) and economic growth, but unbalanced sectoral dependence undermines the effect of industrial policy. Second, the increased market power of firms in the targeted sector has a dual impact on the sectoral capacity, depending on the productivity growth characteristics of each sector. Third, the industrial policy regime is highly susceptible to adverse external price shocks. These findings are consistent with the Korean growth experience during the HCI promotion period in which chaebols (big business groups) flourished, and the economy suffered from stagflation and idle capacity in the final stage of HCI promotion.

Bread and Steel: Harcourt on the Economic Surplus, Employment and Distribution in Two-Sector Economies

ABSTRACT The present paper is set out to examine the place of Geoff Harcourt’s 1965 ‘Two-sector model of the distribution of income and the level of employment in the short run’ in his research agenda, as well as its original historical context and fate. That pioneer model articulated how the production of the potential economic surplus in the consumption goods sector, and its realization as actual surplus through aggregate demand coming from investment in the capital goods sector decided, together with the mark-up in the consumption sector, the level of employment and the distribution of income. The connections between Harcourt’s model and M. Kalecki’s similar approach are also tackled in the paper, together with the reasons for the relatively small impact of that model in the literature despite its initial success at a Cambridge seminar at the time.

Sectoral Dynamics of Industrial Policy in a Two-sector Economy: the Case of Korea’s Heavy and Chemical Industry (HCI) Promotion (1973-1979)

Sectoral Dynamics of Industrial Policy in a Two-sector Economy: the Case of Korea’s Heavy and Chemical Industry (HCI) Promotion (1973-1979)

International prices and continuing conflict: Theory and evidence from sub-Saharan Africa (1980–2017)

This article presents a theoretical model of conflict between two parties in a two-sector economy. In a ‘contested’ sector, they struggle to appropriate the maximum possible fraction of a contestable output. In an ‘uncontested’ sector, they hold secure property rights over the production of some goods. Parties split their resource endowment between ‘butter’ and ‘guns’ (in the contested sector) and ‘ice cream’ (in the uncontested sector). The model predicts that the optimal level of ‘guns’ depends positively on the price of ‘butter’ and negatively on the price of ‘ice cream’. Theoretical results are tested by means of a panel analysis of sub-Saharan African countries for the period 1980–2017. The results show that international prices of manufactures (interpreted as the uncontested ice cream sector) are negatively associated with arms imports and military expenditure, so confirming the theoretical prediction. In addition, world prices of some commodities are positively associated with arms imports and military expenditure.

Гражданско-правовые основы формирования и функционирования мобилизационной экономики в Российской Федерации

Introduction: due to the sharp aggravation of the international situation and actions by the West against the Russian Federation, in fact, laced with the military ones, the paper substantiates the need for a significant adjustment of the socio-economic model in the country. Purpose: it is necessary not to liquidate or reorganize state-owned enterprises based on the right of economic management, but, on the contrary, to develop them. Methods: in carrying out this study, the formal legal, historical-legal and comparative-legal methods were used to formulate the civil foundations for the developing and functioning of the mobilization economy in the Russian Federation. Results: in modern conditions, a more efficient economy that quickly responds to changing conditions is required, that does not require lengthy negotiations and approvals. This should be a mobilization economy, such an economy should function not only on the basis of private, but also state property, represented not only by private, but also by state structures - state enterprises. The expediency of creating a two-sector economy consisting of the private sector and the public sector is proved. Conclusions: the conclusion is substantiated that only conscientious entrepreneurs should have the right to freedom of entrepreneurial activity. Such a category as the right to freedom of entrepreneurial activity needs serious clarification. This right should be understood as freedom for bona fide entrepreneurs, that is, those who carry out entrepreneurial activities not only to obtain their own benefit, but also to satisfy the public interest. The need to increase the social significance of entrepreneurship has been identified. Article 2 of the Civil Code of the Russian Federation should clarify the concept of entrepreneurial activity, indicating that this activity is carried out both in public and private interests.

Pro-Poor Growth Meets Dualistic Development

Pro-poor growth refers to how incomes change for the poor and for otherswhen economic growth occurs. Dualistic development refers to three typesof economic growth patterns in a two-sector economy: 1) modern sectorenrichment, 2) traditional sector enrichment, and 3) modern sectorenlargement. The question asked in this article is, what can we say aboutthe pro-poorness of each of the three types of dualistic development? Themain conclusion I reach is that pro-poor growth works well for the first twodualistic growth types but runs into some difficulties for the third. Toovercome these problems, I posit some axioms for dualistic development –particularly, by treating pro-richness and pro-poorness as distinct orderings.

How Resilient Is the U.S. Economy to Foreign Disturbances?

We assess the relative importance of domestic and foreign disturbances in explaining fluctuations in key macroeconomic variables and find that both types of shocks are equally important. We reach this conclusion within a constructed two-sector open economy DSGE model context, where we isolate the relative contributions of each group of disturbances to post-WWII U.S. business cycles. Our approach is to apply the indirect inference method to test the model’s fit against a four-equation VAR(1) of output, real exchange rate, energy use, and consumption. Our main result is that foreign disturbances are pivotal to driving movements in these home variables; accounting for 38% of the variability in aggregate output, 73% of the variation in the real exchange rate, 45% of the variance of energy use, and 84% of the volatility of consumption. Further, foreign disturbances are also identified to be crucial for some other home macroeconomic variables, explaining larger fractions in changes to investment, labour hours, and real interest rate. However, the U.S. economy appears to be resilient to foreign disturbances with respect to certain macroeconomic variables; in particular, exports, imports, real wages, and domestic absorption.

The Shock Reactions in the Closed Digital Economy

Economic variability can affect economic agents’ risk perception and behavior, which in turn affects negatively economic activities and prosperity. The government, therefore, tries to raise their confidence by designing proper policies to stabilize the economy. To learn the effects of the policies, several models are utilized, and the Dynamic Stochastic General Equilibrium (DSGE) model is recognized as a potential choice for discovering such effects. Also, this work applies the DSGE model to extend its application and contributes to this research area in terms of model construction technique by learning the policy effects in the Thai context through the closed economy models. In this study, Thailand's quarterly detrended data from 2001:Q1 to 2019:Q2 and the Bayesian estimation method were used. The results showed that the positive effect of technological evolution on economic growth occurred in both economies, but the effect in the two-sector economy was less than what occurred in the one-sector economy. Additionally, it was demonstrated that monetary policy was more effective than fiscal policy. Hence, the recommendations were that policy designers had to design policies to improve technology in all sectors simultaneously, and the fiscal authority had to recognize the effect of the number of related agents on the effectiveness of its policies. Also, the monetary authority had to design a boundary for interest rate volatility to stabilize the economy.

Bread and Steel: Harcourt on the Economic Surplus, Employment, and Distribution in Two-Sector Economies

Bread and Steel: Harcourt on the Economic Surplus, Employment, and Distribution in Two-Sector Economies

Income distribution, technical change, and economic growth: A two-sector Kalecki–Kaldor approach

This paper presents a two-sector Kalecki–Kaldor model of income distribution, technical change, and economic growth. The model is Kaleckian in the sense that it incorporates mark-up pricing, investment independent of saving, and excess capacity. It is also Kaldorian, in that labour productivity growth is led by Kaldor’s technical progress function. In other words, productivity growth is endogenously realised through the technology embodied in new capital stock, which differentiates our model from previous two-sector models. Our extension drastically changes the standard Kaleckian implications. We find that although the economic activity levels in the short run are led by the demand and income distribution parameters, economic growth in the long run is realised by supply-side (i.e. technical change and the associated productivity and wage growth) parameters. The important implication of our findings is that a two-sector economy faces a trade-off between a high economic growth rate and the local stability of the steady state.

ДВОСЕКТОРНА МОДЕЛЬ ЕКОНОМІКИ В УМОВАХ ЕКОЛОГІЗАЦІЇ ВИРОБНИЦТВА ТА СПОЖИВАННЯ

The urgency of the problem of ecologization of the economy and of other spheres of human life is revealed. This problem is one of the most acute and priority problems of the modern world, as the consequences of negative anthropogenic impact on the environment are environmental crises of regional and global scale, including climate change, which threatens not only socio-economic development of human civilization but also its existence. In this regard, not only the greening of the economy is relevant, but also the greening of consumption, education, culture, upbringing, and so on. The research of the stated and many other issues related to the greening of human activities requires the use of many scientific tools. The multifaceted nature of the object and subject of research is analyzed, which actually leads to the use of a set of conceptual, methodological and methodological approaches. The efficiency of the modeling method and the necessity of constructing the ecological economy models for the purpose to research conceptual bases and admissible scenarios of its formation and development are substantiated. The differential dynamic The urgency of the problem of ecologization of the economy and of other spheres of human life is revealed. This problem is one of the most acute and priority problems of the modern world, as the consequences of negative anthropogenic impact on the environment are environmental crises of regional and global scale, including climate change, which threatens not only socio-economic development of human civilization but also its existence. In this regard, not only the greening of the economy is relevant, but also the greening of consumption, education, culture, upbringing, and so on. The research of the stated and many other issues related to the greening of human activities requires the use of many scientific tools. The multifaceted nature of the object and subject of research is analyzed, which actually leads to the use of a set of conceptual, methodological and methodological approaches. The efficiency of the modeling method and the necessity of constructing the ecological economy models for the purpose to research conceptual bases and admissible scenarios of its formation and development are substantiated. The differential dynamic The urgency of the problem of ecologization of the economy and of other spheres of human life is revealed. This problem is one of the most acute and priority problems of the modern world, as the consequences of negative anthropogenic impact on the environment are environmental crises of regional and global scale, including climate change, which threatens not only socio-economic development of human civilization but also its existence. In this regard, not only the greening of the economy is relevant, but also the greening of consumption, education, culture, upbringing, and so on. The research of the stated and many other issues related to the greening of human activities requires the use of many scientific tools. The multifaceted nature of the object and subject of research is analyzed, which actually leads to the use of a set of conceptual, methodological and methodological approaches. The efficiency of the modeling method and the necessity of constructing the ecological economy models for the purpose to research conceptual bases and admissible scenarios of its formation and development are substantiated. The differential dynamic model of a two-sector economy in the conditions of greening of production and consumption processes has been developed, in which one sector is engaged in the production of the main aggregate product, and the other – in utilization of environmentally hazardous production and consumption residues. A specific feature of the model is also taking into account the socio-economic clustering of society, which allows in a sense to reflect both environmental, economic and social aspects of the economy uder the study. Spatial variables of the model are liquid savings or liquid capital of production owners and workers in each sector, the price of the main aggregate product, the tariff for waste disposal, the amount of environmental pollution. The proposed model serves as a theoretical basis for building models of ecological and economic dynamics and the basis for some of its modifications, taking into account the specifics of behavioral functions and parameters, and is designed for experimental research in computer simulation of major trends and features of real ecological and economic systems. The results of such a study with models of this class also provide an opportunity to analyze acceptable environmental standards of production and consumption, test and improve the relevant information support, detail the fundamentally important requirements for the functions and parameters used in formalizing the model and ultimately create a valuable information base for systems support of management decisions on forecasting and implementation of ecological and economic processes.

On the political economy of industrial, labor and social reforms as complements

This paper shows that ignoring the political relevance of labor and social policies can lead to the failure of an industrial policy designed to modernize an economy. Our analysis is based on a simple model of a two-sector economy (one old and one new) in which policy decisions are adopted under a majority rule. This model suggests that unless, (i) the labor policy ensures that workers have enough bargaining power to give them an incentive to find a job matching their skills in a restructured economy and (ii) the government adopts a social policy compensating the losers of the industrial policy, the new sector is unlikely to develop. Moreover, we find that the credibility of the commitments made drives the effectiveness of the coordination of the three policy elements.

Social network, unemployment and sector trap: A theoretical model explaining the case study of Portuguese immigrants in the French labor market

This paper shows that social networks are likely to induce sector concentration and sector trapping in the labor market. We develop a two-sector economy with endogenous allocation of the labor force between sectors and social networks that favor the transmission of job information. We show that social networks can induce sector concentration even when sectoral productivities and entry costs are perfectly symmetric. Moreover, we show that social networks can also trap workers in poorly productive sectors. These results are in accordance with the migration history and the situation of Portuguese immigrants in the French labor market.

Money and Debt Demand: A Cyclic Model

The author attempts to reconstruct the money demand theory in the context of “debt demand,” by discussing the money demand of households and the debt demand of enterprises separately. This paper outputs the money demand function of the household sector and the debt demand function of the enterprise sector in a two-sector economy, and their cyclic models based on the analysis of income and consumption mismatch in economic entities. In addition, money velocity is internalized by introducing the average money duration and the average debt cycle. Finally, in a logically consistent way, the mechanism of financial crises in the economic cycle is interpreted by the monetary debt cycle model proposed in this article.

Embodied and disembodied technological change: The sectoral patterns of job-creation and job-destruction

This paper addresses, both theoretically and empirically, the sectoral patterns of job creation and job destruction in order to distinguish the alternative effects of embodied vs disembodied technological change operating into a two-sector economy. Disembodied technological change turns out to positively affect employment dynamics in the “upstream” sectors, while expansionary investment does so in the “downstream” industries. However, these labour-friendly impacts are barely significant from a statistical point of view. Conversely, the replacement of obsolete capital vintages tends to exert a negative impact on labour demand and this effect turns out to be highly significant.

Growth and long-run sustainability

AbstractFrom any state of economic and environmental assets, the maximin value defines the highest level of utility that can be sustained forever. Along any development path, the maximin value evolves over time according to investment decisions. If the current level of utility is lower than this value, there is room for growth of both the utility level and the maximin value. For any resource allocation mechanism (ram) and economic dynamics, growth is limited by the long-run level of the maximin value, which is an endogenous dynamic sustainability constraint. If utility reaches this limit, sustainability imposes growth to stop, and the adoption of maximin decisions instead of the currentram. We illustrate this pattern in two canonical models, the simple fishery and a two-sector economy with a nonrenewable resource. We discuss what our results imply for the assessment of sustainability in the short and the long run in non-optimal economies.

Роль финансового сектора в трансмиссии шоков макроэкономической политики в российской экономике. Оценка при различных предпосылках о структуре производства

The financial sector plays a crucial role in the economy, not only being a simple intermediary between creditors and borrowers, but also having a significant impact on the economy’s development and its various characteristics. For this reason, accounting for financial sector peculiarities is critical when developing policy-oriented general equilibrium models for practical use. This drives the interest of many researchers in development of approaches to describing the financial sector and financial frictions in DSGE models. In financial frictions models one can describe the production side of the economy in a simplistic way. However, it could be important to model the production sector in more detail. For instance, separating tradable and non-tradable sectors of the economy could be of great significance, especially for developing economies which depend on foreign trade a lot. In this paper we analyze the role of the financial sector and how important it is for transmission of monetary and fiscal shocks under different assumptions about the production sector. Namely, we compare two-sector economy with tradable and non-tradable sectors with a simplistic model which assumes that the economy produces only tradable goods. According to the results, financial frictions impact tradable and nontradable sectors asymmetrically. In the two-sector model the effect of financial frictions is quantitatively smaller than in the one-sector economy. Therefore, using the latter simplifying assumption could lead to overestimating the role of financial frictions in the transmission of monetary and fiscal shocks. In addition, the paper provides estimates of how changes in monetary and fiscal policy instruments impact the Russian economy given the existence of financial frictions.

Input-Output Production Structure and Non-Linear Production Possibility Frontier

Input-output (Leontief) production function is widely used in economic analysis. And diminishing marginal rate of return is a very well accepted economic fact. Leontief production function normally results in a linear production possibility frontier (PPF) due to its linear feature, whereas diminishing marginal rate of return implies a non-linear PPF. In this paper, the authors aim to fix this problem by considering multiple primary inputs in a simplified two-sector economy. The authors find that it is possible to curve a non-linear PPF by using Leontief production function when the authors add heterogeneous primary inputs. The authors also discuss the PPF using non-linear production function. Furthermore, the authors propose that three commonly used economic presumptions cannot hold in the same framework. These presumptions are “single primary input”, “fixed-proportion inputs” and “law of diminishing marginal returns”.

Aggregate fluctuations and the industry structure of the US economy

Abstract In a two-sector economy, changes in intermediate input trade as reflected in cost share fluctuations are key to determining the amplification properties of investment-specific and neutral shocks. I document that the cost shares of intermediate inputs produced by the investment sector correlate positively with GDP, whereas those of inputs produced by the consumption sector correlate negatively with GDP. The two-sector model of Greenwood et al. (1988) is extended to allow for trade of intermediate goods and to show that the documented correlations discipline heterogeneous elasticities of substitution in intermediate inputs across sectors. Shock amplification — that is, the effect of a sectorial shock on aggregate value added — depends on the degree of heterogeneity in these elasticities of substitution. For a calibrated economy to that of the United States, I find that shock amplification is stronger than in a unitary elasticity economy. It is also stronger than in an economy with a common non-unitary elasticity that is either inferred from data via reduced-form estimates, or calibrated to match the same targets as our benchmark economy.