Theory and Empirics
Edited by Neri Salvadori, Pasquale Commendatore and Massimo Tamberi
8. The legacy of dualism in new growth theory Salvatore Capasso and Maria Rosaria Carillo 8.1. INTRODUCTION The most recent advances in growth theory have shown renewed interest in issues that had long been marginalised, at least by the mainstream literature on growth. Structural changes in production systems, increasing urbanization during development, unemployment persistence, the possibilities of market failures and the emerging of poverty traps are some of these issues. The study of such issues requires complex theoretical approaches and the assumption of frictions and impediments to the proper functioning of markets. Hence balanced growth cannot always provide a proper framework for such analysis. However, as amply shown by empirical evidence, development1 very rarely occurs in a smooth pattern. Almost always, development involves deep restructuring of the economy, with the rescaling of some sectors and the emergence and growth of others. It entails changes in health standards, education, and in institutional settings. Inevitably, an analysis of growth and development which does not fully take such considerations into account risks being partial and limitative. Although these same issues have long occupied much of the attention of development literature; the latter has been more interested in the empirical description of the process of development as this unfolds, rather than in growth. On these grounds, growth theory has recently attempted to modify the standard balanced growth framework to allow for some empirical regularities which were hitherto not taken into account. As a result, this literature has been able to provide an innovative rationale...
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