Alternative Models for Structural Change and Unbalanced Growth *

The resurgence of interest in the theory of economic growth was sparked off by the work of Romer (1986, 1990) and Lucas (1988). The flood of papers that followed concentrated on modelling knowledge creation and skill formation. The objective was to explain what prevents diminishing returns to material capital from eating into the growth of income per head. As it turns out, the outcome of this line of research can be summed up within the framework of the original Solow model itself. ¹ A hallmark of the Solow family of models is balanced growth behaviour in the long run. Such behaviour conforms asymptotically to the following ‘Kaldor facts’: constancy of (a) the growth rate of per capita income, (b) the real return on capital, (c) the capital output ratio and (d) the factor shares (Kaldor 1961).