Basu’s Chapter on Vicious Cycle of Poverty

Read pages 23 through 33 in the linked handout (Basu’s Chapter on Vicious Cycle of Poverty). Answer the following questions:

(a) After allowing for a higher wage in the modern industrialized sector, Basu derives the following equation at the end of page 28.

Derive this equation (beginning from equation (2.1) on page 24) without skipping steps.

(b) Basu claims that a "critical minimum" number of sectors will have to be industrialized by a government “before natural market forces get activated and further industrialization proceeds on its own.” Explain this carefully and connect it to the Nurkse-Rosenstein Rodan debate.

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