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

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  • Gogol Mitra Thakur

Abstract

Motivated 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.

Suggested Citation

  • Gogol Mitra Thakur, 2023. "Modern services led growth and development in a structuralist dual economy: Long‐run implications of skilled labor constraint," Metroeconomica, Wiley Blackwell, vol. 74(4), pages 748-776, November.
    • Handle: RePEc:bla:metroe:v:74:y:2023:i:4:p:748-776
    DOI: 10.1111/meca.12443
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    3. Ghani, Ejaz & Kharas, Homi, 2010. "The Service Revolution," World Bank - Economic Premise, The World Bank, issue 14, pages 1-5, May.
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    5. Marc Lavoie, 1992. "Foundations of Post-Keynesian Economic Analysis," Books, Edward Elgar Publishing, number 275.
    6. Amrit Amirapu and Arvind Subramanian, 2015. "Manufacturing or Services? An Indian Illustration of a Development Dilemma - Working Paper 409," Working Papers 409, Center for Global Development.
    7. Gaurav Nayyar, 2013. "Inside the black box of services: evidence from India," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 37(1), pages 143-170.
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    More about this item

    JEL classification:

    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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