Many theories link urbanization with industrialization; in particular, with the production of tradable (and typically manufactured) goods. We document that the expected relationship between urbanization and the level of industrialization is not present in a sample of developing economies. The breakdown occurs due to a large sub-sample of resource exporters that have urbanized without increasing output in either manufacturing or industrial services such as finance. To account for these stylized facts, we construct a model of structural change that accommodates two different paths to high urbanization rates. The first involves the typical movement of labor from agriculture into industry, as in many models of structural change; this stylized pattern leads to what we term "production cities" that produce tradable goods. The second path is driven by the income effect of natural resource endowments: resource rents are spent on urban goods and services, which gives rise to "consumption cities" that are made up primarily of workers in non-tradable services. We document empirically that there is such a distinction in the employment composition of cities between developing countries that rely on natural resource exports and those that do not. Our model and the supporting data suggest that urbanization is not a homogenous event, and this has possible implications for long-run growth.

This paper suggests that inequality in the distribution of landownership adversely affected the emergence of human-capital promoting institutions (e.g. public schooling), and thus the pace and the nature of the transition from an agricultural to an industrial economy, contributing to the emergence of the great divergence in income per capita across countries. The prediction of the theory regarding the adverse effect of the concentration of landownership on education expenditure is established empirically based on evidence from the beginning of the 20th century in the U.S.

This paper suggests that inequality in the distribution of landownership adversely affected the emergence of human-capital promoting institutions (e.g. public schooling), and thus the pace and the nature of the transition from an agricultural to an industrial economy, contributing to the emergence of the great divergence in income per capita across countries. The prediction of the theory regarding the adverse effect of the concentration of landownership on education expenditure is established empirically based on evidence from the beginning of the 20th century in the U.S.

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This paper brings together development accounting techniques and the dual economy model to address the role that factor markets have in creating variation in aggregate total factor productivity (TFP). Development accounting research has shown that much of the variation in income across countries can be attributed to differences in TFP. The dual economy model suggests that aggregate productivity is depressed by having too many factors allocated to low productivity work in agriculture. Data show large differences in marginal products of similar factors within many developing countries, offering prima facie evidence of this misallocation. Using a simple two-sector decomposition of the economy, this article estimates the role of these misallocations in accounting for the cross-country income distribution. A key contribution is the ability to bring sector-specific data on human and physical capital stocks to the analysis. Variation across countries in the degree of misallocation is shown to account for 30–40% of the variation in income per capita, and up to 80% of the variation in aggregate TFP.

This paper brings together development accounting techniques and the dual economy model to address the role that factor markets have in creating variation in aggregate total factor productivity (TFP). Development accounting research has shown that much of the variation in income across countries can be attributed to differences in TFP. The dual economy model suggests that aggregate productivity is depressed by having too many factors allocated to low productivity work in agriculture. Data show large differences in marginal products of similar factors within many developing countries, offering prima facie evidence of this misallocation. Using a simple twosector decomposition of the economy, this article estimates the role of these misallocations in accounting for the cross-country income distribution. A key contribution is the ability to bring sector-specific data on human and physical capital stocks to the analysis. Variation across countries in the degree of misallocation is shown to account for 30-40% of the variation in income per capita, and up to 80% of the variation in aggregate TFP.

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A salient feature of developing economies is the coexistence of a modern commercial sector alongside a traditional subsistence sector—the dual economy. The apparent differences in productivity between sectors imply substantial losses in aggregate productivity. Existing theories of the dual economy rely on exogenous price distortions, and cannot explain why or if these distortions evolve over the course of development. This paper provides a model of the dual economy in which the productivity differences arise endogenously because of a non-separability between the value of market and non-market time in the traditional sector. Incorporating endogenous fertility, the model then demonstrates how a dual economy will originate, persist, and eventually disappear within a unified growth framework. An implication is that traditional sector productivity growth will exacerbate the inefficiencies of a dual economy and produce slower overall growth than will modern sector productivity improvements.