Review article. Growth and stagnation in a two-sector model: Kaldor's Mattioli Lectures

Kaldor's Mattioli Lectures analyse a two-sector model with increasingreturns to scale (IRS) in industry and diminishing returns inagriculture (DR). This review article shows that (i) with IRSin industry, a long-run equilibrium growth path with strictlypositive growth rates may exist even if agriculture is subjectto DR; (ii) the industrial sector is the 'engine of growth'if agricultural investment is determined passively by availablesaving; and (iii) if one introduces a separate agriculturalinvestment function, both positive and negative agriculturalsupply shocks may lead to stagnation, thus vindicating Kaldor'semphasis on commodity price stabilisation.