Economic Growth and the Return to Capital in Developing Economies.

An important stylized fact of economic growth is that the rate of return to capital is relatively constant across countries and over time. This paper provides an explanation using a model of growth for a developing economy that has a dualistic structure. Three conditions are derived, each of which may account for the observed stability of the return to capital. The results address Lucas' criticism of conventional growth models and support recent growth accounting studies of East Asian economies, which emphasize the role of increased factor inputs. Copyright 1999 by Royal Economic Society.