A THEORY OF REAL WAGE GROWTH IN LDCS

A general equilibrium framework is presented to explain a variety of developmental experiences. The demand side is modelled by assuming a system of preferences that incorporate Engel's law in a stark way. The framework explains why poverty might be impervious to industrial progress in some countries. It also explains why countries which have been able to boost the exports of manufactured goods have been more successful in raising real wages in their economies than countries which have continued to export primary goods. The framework indicates how the initial conditions in terms of the level and distribution of wealth influence the growth of real wages in an economy.