IDEAS home Printed from https://ideas.repec.org/p/keo/dpaper/2019-007.html
   My bibliography  Save this paper

Productive Consumption Hypothesis and a Two-Sector Model of Economic Development

Author

Listed:
  • Ichiroh Daitoh

    (Faculty of Business and Commerce, Keio University)

  • Kazuo Nishimura

    (Research Institute for Economics and Business Administration, Kobe University)

Abstract

In low income countries, labor productivity crucially depends on a per capita consumption level that contributes to good nutrition, health and/or education. A higher level of per capita consumption improves each worker's labor productivity. The concept of productive consumption was first introduced into the growth model by Steger (2000a). In this paper, we assume that the average consumption in a society has a positive externality in production and show that the indeterminacy of equilibrium can occur in a two-sector model even without the externality of capital input. This finding explains the growth of developing countries with little or no capital externality and the diversity in the growth rates of per capita real income along the transitional paths of low income developing economies. Each country can choose a different path from an infinite number of equilibrium paths converging to the indeterminate steady state.

Suggested Citation

  • Ichiroh Daitoh & Kazuo Nishimura, 2019. "Productive Consumption Hypothesis and a Two-Sector Model of Economic Development," Keio-IES Discussion Paper Series 2019-007, Institute for Economics Studies, Keio University.
  • Handle: RePEc:keo:dpaper:2019-007
    as

    Download full text from publisher

    File URL: https://ies.keio.ac.jp/upload/pdf/en/DP2019-007.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June.
    2. Jellal, Mohamed & Zenou, Yves, 2000. "A dynamic efficiency wage model with learning by doing," Economics Letters, Elsevier, vol. 66(1), pages 99-105, January.
    3. Bliss, Christopher & Stern, Nicholas, 1978. "Productivity, wages and nutrition : Part I: the theory," Journal of Development Economics, Elsevier, vol. 5(4), pages 331-362, December.
    4. Bliss, Christopher & Stern, Nicholas, 1978. "Productivity, wages and nutrition : Part II: Some observations," Journal of Development Economics, Elsevier, vol. 5(4), pages 363-398, December.
    5. Strauss, John, 1986. "Does Better Nutrition Raise Farm Productivity?," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 297-320, April.
    6. Steger, Thomas M., 2000. "Economic growth with subsistence consumption," Journal of Development Economics, Elsevier, vol. 62(2), pages 343-361, August.
    7. Ray, Debraj & Streufert, Peter A, 1993. "Dynamic Equilibria with Unemployment Due to Undernourishment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(1), pages 61-85, January.
    8. Lazear, Edward P, 1977. "Education: Consumption or Production?," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 569-597, June.
    9. Banerji, Sanjay & Gupta, Manas Ranjan, 1997. "The efficiency wage given long-run employment and concave labor constraint," Journal of Development Economics, Elsevier, vol. 53(1), pages 185-195, June.
    10. Stiglitz, Joseph E, 1976. "The Efficiency Wage Hypothesis, Surplus Labour, and the Distribution of Income in L.D.C.s," Oxford Economic Papers, Oxford University Press, vol. 28(2), pages 185-207, July.
    11. Gersovitz, Mark, 1983. "Savings and Nutrition at Low Incomes," Journal of Political Economy, University of Chicago Press, vol. 91(5), pages 841-855, October.
    12. repec:bla:rdevec:v:4:y:2000:i:3:p:365-75 is not listed on IDEAS
    13. Jess Benhabib & Kazuo Nishimura, 2012. "Indeterminacy and Sunspots with Constant Returns," Springer Books, in: John Stachurski & Alain Venditti & Makoto Yano (ed.), Nonlinear Dynamics in Equilibrium Models, edition 127, chapter 0, pages 311-346, Springer.
    14. Thomas M. Steger, 2000. "Productive Consumption and Growth in Developing Countries," Review of Development Economics, Wiley Blackwell, vol. 4(3), pages 365-375, October.
    15. Dinda, Soumyananda, 2008. "Social capital in the creation of human capital and economic growth: A productive consumption approach," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(5), pages 2020-2033, October.
    16. Hirofumi Uzawa, 1964. "Optimal Growth in a Two-Sector Model of Capital Accumulation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 31(1), pages 1-24.
    17. Suen, Wing & Mo, Pak Hung, 1994. "Simple Analytics of Productive Consumption," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 372-383, April.
    18. Steger, Thomas M., 2002. "Productive consumption, the intertemporal consumption trade-off and growth," Journal of Economic Dynamics and Control, Elsevier, vol. 26(6), pages 1053-1068, June.
    19. Daitoh, Ichiroh, 2010. "Productive consumption and population dynamics in an endogenous growth model: Demographic trends and human development aid in developing economies," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 696-709, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Daitoh, Ichiroh, 2010. "Productive consumption and population dynamics in an endogenous growth model: Demographic trends and human development aid in developing economies," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 696-709, April.
    2. Thomas M. Steger, 2000. "Productive Consumption and Growth in Developing Countries," Review of Development Economics, Wiley Blackwell, vol. 4(3), pages 365-375, October.
    3. Raghbendra Jha & Raghav Gaiha & Anurag Sharma, 2005. "Poverty Nutrition Trap in Rural India," Departmental Working Papers 2005-02, The Australian National University, Arndt-Corden Department of Economics.
    4. Ayalew, Tekabe, 2003. "Nutrition-productivity link and the persistence of poverty," IOB Discussion Papers 2003.02, Universiteit Antwerpen, Institute of Development Policy (IOB).
    5. Hiroaki Hayakawa, 2017. "Health-conscious consumer behavior," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 7(1), pages 1-31, April.
    6. Carl-Johan Dalgaard & Holger Strulik, 2011. "A physiological foundation for the nutrition-based efficiency wage model," Oxford Economic Papers, Oxford University Press, vol. 63(2), pages 232-253, April.
    7. Steger, Thomas M., 2002. "Productive consumption, the intertemporal consumption trade-off and growth," Journal of Economic Dynamics and Control, Elsevier, vol. 26(6), pages 1053-1068, June.
    8. Soumyananda Dinda, 2014. "Inclusive growth through creation of human and social capital," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 41(10), pages 878-895, October.
    9. Chaudhuri, Sarbajit & Mukherjee, Ujjaini, 2002. "Removal of protectionism, foreign investment and welfare in a model of informal sector," Japan and the World Economy, Elsevier, vol. 14(1), pages 101-116, January.
    10. Aysit Tansel & Ceyhan Ozturk & Erkan Erdil, 2021. "The Impact of Body Mass Index on Growth, Schooling, Productivity, and Savings: A Cross-Country Study," Koç University-TUSIAD Economic Research Forum Working Papers 2118, Koc University-TUSIAD Economic Research Forum.
    11. Konstantinos Chatzimichael & Margarita Genius & Vangelis Tzouvelekas, 2015. "Health-Damaging Inputs, Workers' Health Status and Productivity Measurement," Working Papers 1505, University of Crete, Department of Economics.
    12. Soumyananda Dinda, 2014. "A theoretical basis for green growth," International Journal of Green Economics, Inderscience Enterprises Ltd, vol. 8(2), pages 177-189.
    13. Partha Dasgupta & Debraj Ray, 1987. "Adapting to Undernourishment: The Clinical Evidence and Its Implications," WIDER Working Paper Series wp-1987-010, World Institute for Development Economic Research (UNU-WIDER).
    14. Swamy, Anand V., 1997. "A simple test of the nutrition-based efficiency wage model," Journal of Development Economics, Elsevier, vol. 53(1), pages 85-98, June.
    15. Glomm, Gerhard & John, Andrew, 2002. "Homelessness and labor markets," Regional Science and Urban Economics, Elsevier, vol. 32(5), pages 591-606, September.
    16. Owen O'Donnell & Eddy Van Doorslaer & Tom Van Ourti, 2013. "Health and Inequality," Tinbergen Institute Discussion Papers 13-170/V, Tinbergen Institute.
    17. Jha, Raghbendra & Gaiha, Raghav & Sharma, Anurag, 2009. "Calorie and Micronutrient Deprivation and Poverty Nutrition Traps in Rural India," World Development, Elsevier, vol. 37(5), pages 982-991, May.
    18. Renuka Mahadevan & Vincent Hoang, 2016. "Is There a Link Between Poverty and Food Security?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 128(1), pages 179-199, August.
    19. Rodgers, Gerry,, 1981. "Migration and income distribution," ILO Working Papers 992132233402676, International Labour Organization.
    20. Paul Schultz, T., 2003. "Wage rentals for reproducible human capital: evidence from Ghana and the Ivory Coast," Economics & Human Biology, Elsevier, vol. 1(3), pages 331-366, December.

    More about this item

    Keywords

    developing country; economic growth; indeterminacy of equilibrium; productive consumption;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:keo:dpaper:2019-007. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Institute for Economics Studies, Keio University (email available below). General contact details of provider: https://edirc.repec.org/data/iekeijp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.