Land and the transition from a dual to a modern economy

Tenurial contracts in agriculture can be an initial source of wealth accumulation for dynasties of poor, credit-constrained individuals. The income from such contracts can be invested in education of offspring, who then can find work in the formal manufacturing sector. This process allows the economy to develop into a modern economy with a large manufacturing sector. An excessive number of poor individuals competing for scarce land, however, drives up the rental price of land, which then slows the process of accumulation and forces the economy to converge to a less efficient dual equilibrium. In such cases, a policy of land redistribution coupled with a temporary education subsidy may be needed to push the economy to a modern equilibrium.