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THE JORGENSON MODEL
One of the major reasons to account for the sluggish expansion of the industrial sector in the
LDCs could have been the very low productivity rises in subsistence agriculture
...
Indeed, this is
the essence of the dual economy model as developed by Jorgenson (1961), who argues that
for the improvement of the modern sector (i
...
non- agricultural sector of the LDCs), it is
imperative that the surplus must be generated and it should persist
...
Jorgenson distinguishes between the modern (say industrial) and the backward (say
agricultural) sector of the economy
...
In the modern
sector, output is given by labour and capital and the function is subject to constant returns to
scale
...
Population growth is determined by per
capita food supply and the net rate of reproduction (i
...
birth rate minus the death rate)
...
After the initial investment, growth of
accumulation is given by the growth of labour in the industrial sector and the terms of trade
between the agricultural and the industrial sectors, though industrial real wages could be
more than agricultural real wages to allow for labour migration
...
This gap also determines the terms of trade
between the two sectors and the investment rate in the modern sector
...
The model can then be formally described as follows
...
Let the
production function be of the Cobb-Douglas type, i
...
Where eαt is the change in output due to technical progress
...
Differentiating with respect to time and dividing by
y, we obtain
Let,
Then
which specifies the situation where per capita income growth, α−βη > 0, would be obtained
for any positive level of output
...
e
...
Hence, public policy should be used to alter either
α (i
...
the rate of technical progress) or η (i
...
the maximum growth rate of the population), or
both
...
Where α=η, a ‘lowlevel equilibrium’ is obtained
...
Let
γ
Q=A(t)C L1−γ
Per capita output is derived by Dividing Q and C by L
q=eλt Cγ
Where q is output per head: Q/L
...
Then growth of per capita output is
determined by differentiating with respect to time and dividing through by q:
This equation shows that growth of per capita output depends on technical progress and
marginal returns to capital in industrial sector
...
To promote growth and to escape
stationary equilibrium of a backward economy, it is necessary to accumulate capital
...
Hence α−βη
> 0 is a necessary and sufficient condition for generating agricultural surplus and the
generation of surplus is vital for industrialization
...