ABSTRACT
The classical economy tradition (dual economy) draws a sharp distinction between the traditional and modern sectors of the economy, typically characterized as agriculture and industry, respectively.1 On the contrary, the neoclassical model argues the view that different types of economic activity are structurally similar enough to be aggregated into a single representative sector. However, in reality and as the dual economy model suggests, considerable structural heterogeneity characterizes the economies of developing countries. Different drivers are at play, and dissimilar economic logics are at work in traditional and modern parts of the economy, so these two cannot be lumped together. Accumulation, innovation and productivity growth all take place in the modern sector – often in unexplained ways – while the traditional sector remains technologically backward and stagnant. Economy-wide growth therefore depends in large part on the rate at which resources – principally labour – can migrate from the traditional to the modern sectors.
