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Population growth and structural transformation

Ho, Chi Pui (2015): Population growth and structural transformation.

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This paper uncovers the mechanism and assumptions underlying how population growth induces structural transformation. We construct two-sector models that give analytically tractable closed-form solutions. If sectoral goods are consumption complements, population growth induces a more than proportionate relative price rise compared to the relative marginal product of labor drop in a sector with stronger diminishing returns to labor, and shifts production factors towards that sector.

Our work points to a two-stage development process: (1) in early development, population growth shifts production factors to agriculture; and (2) when agricultural productivity growth is fast enough, production factors move out of agriculture.

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