Factor accumulation and growth miracles in a two-sector neoclassical growth model

Countries that experience 'growth miracles' often exhibit rising investment rates and large intersectoral resource transfers. But how important are these factors to this process? We consider this question using a two-sector growth model with a segmented labour market. Numerical simulations show that a doubling of the investment rate can generate a significant intersectoral re-allocation of labour and can have a large impact on aggregate output per worker. Under our baseline parameter values, the effect of the investment rate on per capita incomes is amplified by 25-50 per cent, relative to a standard one-sector growth model.