Growth and Stagnation in a Two-Sector Model: Kaldor\u27s Mattioli Lectures

Kaldor\u27s Mattioli lectures analyse a two-sector model with increasing returns to scale (IRS) in industry and decreasing returns (DRS) in agriculture. This review article shows that (i) with IRS in industry a long-run equilibrium growth path with strictly positive growth rates may exist even if agriculture is subject to DRS; (ii) the industrial sector is the \u27engine of growth\u27 if agricultural investment is determined passively by available saving; (iii) if one introduces a separate agricultural investment function both positive and negative agricultural supply shocks may lead to stagnation, thus vindicating Kaldor\u27s emphasis on commodity price stabilization