DP4387 | Dualism and Aggregate Productivity

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23/05/2004

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Abstract

This Paper shows how to calibrate a two-sector general equilibrium model of production using a small number of parameter assumptions and readily available data. The framework is then used to analyse the costs of labour market dualism. The Paper quantifies the effects of rural-urban wage differentials and urban unemployment on aggregate productivity, wages and returns to capital, factor shares, and sectoral structure. One of the main findings is that labour market rigidities can have a major impact on the extent of industrialization.