Structural change and inter-sectoral mobility in a two-sector economy

This paper studies the dynamics of a two-sector economy (with a natural resource-dependent sector and an industrial sector) characterized by free inter-sectoral labor mobility and heterogeneity of agents (workers and entrepreneurs). In such a context, we analyze the effects of the deterioration of natural resources, caused by the production activity of both sectors, on inter-sectoral movements of the labor force (structural changes), on ecological dynamics and on the revenues of workers and entrepreneurs. As in the seminal work by Matsuyama (1992), we obtain that a low productivity of labor in the resource-dependent sector can fuel the industrialization process. However, differently from Matsuyama, in our model the industrialization process may give rise to a reduction in workers’ revenues if the contribution to environmental depletion of the industrial sector, per unit of product, is higher than that of the resource-dependent one.