ABSTRACT

This chapter talks about the two-sector model of production and distribution, which is opened out into a dynamic model of economic growth, by assuming that the stock of capital available to the economy is determined by the savings behaviour of the community. As with the one-sector model, the process of growth in a two-sector model is most conveniently approached in terms of variations in the stock of capital per head of the effective labour force. A comparative-statics model of distribution between capital and labour on the assumption of a constant returns to scale technology, the Hicksian model can be readily converted into a growth model. The analysis of the effects of the opening of international trade on the long-run growth equilibrium of an economy can readily be converted, on lines familiar in international trade theory, into an analysis of the effects of import duties on the equilibrium of the economy in a long-run equilibrium growth context.