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Development Economics Goes North

When economists talk about global convergence, what they usually have in mind is that developing economies grow more rapidly than advanced economies, and the incomes of the world’s poor rise to levels in richer economies. The irony nowadays is that we are experiencing downward rather than upward convergence.

CAMBRIDGE – At the heart of development economics lies the idea of “productive dualism.” The economists who founded the field of development economics, such as the Nobel laureate Caribbean economist W. Arthur Lewis, noted that poor countries’ economies are split between a narrow “modern” sector that uses advanced technologies and a much larger “traditional” sector characterized by extremely low productivity.

Dualism was long held to be the defining feature of developing countries, in contrast to developed countries, where frontier technologies and high productivity were assumed to prevail across the entire economy. This marked development economics as a distinct branch of the discipline, separate from conventional neoclassical economics.

Development policy, in turn, traditionally focused on overcoming the disparities in incomes, education, health, and life chances more broadly. Its task was to overcome productive dualism through new institutional arrangements that would alter how markets work and expand access to productive opportunities.