A growth model is developed for an open dual economy. The economy expands due to a higher growth rate of labour productivity in the modern sector through the Kaldor-Verdoorn channel and higher effective demand through a Keynesian channel. The model incorporates a retardation mechanism affecting the slopes of productivity and output growth schedules as labour surplus and economies of scale diminish. A wage or profit-led regime and initial conditions may give rise to: de-industrialization in terms of both output and employment; a growth trap sustaining a situation of structural heterogeneity; or sustainable employment and adequate output and productivity growth. Theoretical considerations -- Stylized facts -- The accounting of the model -- Excess demand and short-term equilibrium -- A model of growth and employment in a two-sector economy -- Determining output growth in the two-sector economy -- The retardation of the Kaldor-Verdoorn technical progress function and output growth -- Conclusions.
