Title: Increasing returns and unemployment: an assessment of their relative importance in structural change

Authors: Michele Limosani; Fabio Monteforte

Addresses: Department of Economics, University of Messina, Italy ' Department of Economics, University of Messina, Italy

Abstract: This paper proposes a dual-sector Solow-type model where labour reallocation interacts with the presence of involuntary unemployment in non-agriculture, as a consequence of efficiency wages considerations. The urban sector features also increasing returns to scale, and the model is used to quantify the role played by externalities on aggregate TFP growth. Results suggest that what seems to matter most is technological progress. However, increasing returns to scale do gain importance over time and suggest that the growth bonus from labour reallocation might be overestimated in a context with presence of unemployment.

Keywords: increasing returns; unemployment; efficiency wages; developing countries.

DOI: 10.1504/IJEPEE.2017.085285

International Journal of Economic Policy in Emerging Economies, 2017 Vol.10 No.2, pp.129 - 152

Received: 06 Apr 2015
Accepted: 26 Aug 2015

Published online: 03 Jul 2017 *

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