Modern foundations of dual economy models

This paper reviews recent approaches of the theoretical literature that integrate the basic features of the dual economy models with the advancements made of the new growth theories. By paying specific attention to the role of the agents heterogeneity, market imperfections, non-convexities in preference and production structure, it highlights that the classical conclusions of the dual settings are enriched and often modified by adding more microeconomic structure to the supply and the demand side of the economy. I extend the Temple’s research (2005a) to remark the sources of the yet usefulness of the dual economy models in answering questions related to the growth-inequality-poverty linkages and the long-run development. I show how dual economy environments are suitable to evaluate who benefits, and how much, from economic growth, or yet whether and the extent to which income distribution does matter for shaping the impact of economic growth on individual poverty and hence to proper analyze the theoretical channels driving pro-poor growth.