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Structural change with non-essential and elastic goods

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  • Woo, Wai Chiu

Abstract

According to Adam Smith’s and Allyn Young’s concept of division of labour, market extent and the level of specialization reinforce each other. As a result, multiple equilibria can easily appear, and this feature has been incorporated as a core element in development economics. However, we need further conditions for the existence of multiple equilibria but existing literature largely ignores these conditions. We consider two production structures, one involving intensive division of labour (the modern sector) and one without (traditional sector). We demonstrate that the modern goods should be either non-essential or elastic goods over some relevant range, or multiple equilibria may not exist even if division of labour is important. We use quadratic utility and constant-elasticity-of-substitution utility models to show how each of these conditions takes effect respectively. These new conditions may also help us better understand some features that existed in early days of development.

Suggested Citation

  • Woo, Wai Chiu, 2019. "Structural change with non-essential and elastic goods," Structural Change and Economic Dynamics, Elsevier, vol. 49(C), pages 62-73.
  • Handle: RePEc:eee:streco:v:49:y:2019:i:c:p:62-73
    DOI: 10.1016/j.strueco.2019.04.001
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    References listed on IDEAS

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    Cited by:

    1. Hartwig, Johannes, 2022. "Semi-endogenous growth dynamics in a macroeconomic model with delays," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 538-551.

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    More about this item

    Keywords

    Multiple equilibria; Economic development; Division of labour;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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