Economic Growth and the Return to Capital in Developing Nations

An important stylized fact of economic growth is that the rate of return to capital is relatively constant across countries and time. This paper gives an explanation for this using a model of growth in a developing economy that has dualistic structure. Three conditions are derivedm each of which may be responsible for the observed stability of the return of capital. The results address Lucas' (1990) criticism of conventional growth models and supports Young's (1995) hypothesis of growth in the East Asian economies.