The Dual Role of Exports in the Structural Transformation of the Developing Countries: A Post-Keynesian Structuralist Approach

The postcolonial development trajectories of Latin America, Sub-Saharan Africa, and India have defied the Lewisian structural transformation, in which surplus labor is transferred to modern industry. Rather than a seamless transfer of labor from the informal to the formal sector, these economies have been marked by persistent labor surpluses and entrenched dualism, with large informal sectors coexisting alongside smaller, globally competitive formal sectors and only limited spillovers between them. Heterodox approaches, including Post-Keynesian and Structuralist perspectives, attribute these constraints to limited autonomous demand, balance-of-payments pressures, structural bottlenecks, and elevated Kaldor-Verdoorn coefficients. When autonomous demand or the external balance is the primary constraint, sustained export growth combined with a low Kaldor-Verdoorn coefficient can increase labor demand and facilitate structural transformation. However, this logic presumes a stable composition of external demand. In reality, global demand shifts toward new technologies and sectors, rendering export growth alone insufficient without concurrent diversification and upgrading. The Indian case exemplifies this dynamic. Since the 2000s, the growing share of high-productivity sectors in manufacturing exports has widened the productivity gap between tradable and non-tradable sectors, thereby reinforcing dualism within industry. Tradable sectors, supported by global demand, exhibit pronounced Kaldor-Verdoorn effects, whereas non-tradable sectors remain stagnant and cannot initiate productivity cycles. This segmentation underscores the limitations of export-led strategies for achieving comprehensive structural transformation. In this paper, we develop an extended Balance-of-Payments Constrained Growth model featuring a segmented productivity function to capture these divergences. The model shows that while global demand supports productivity growth in export sectors, it also constrains conditions for positive employment growth, particularly as Kaldor-Verdoorn values approach critical thresholds. These findings highlight exports' dual role in easing external constraints while worsening internal imbalances. JEL codes: O11, O14, O33, E12, B22