Discussion papers // School of Economics and Management of the Hanover Leibniz University 420
This study constructs a simple, two-sector Malthusian model with agriculture and industry, and use it to identify the determinants of subsistence income. We make standard assumptions about preferences and production technology, but by contrast to existing studies we assume that children and other consumption goods are gross substitutes. Consistent with the traditional Malthusian model, we find that productivity growth in agriculture has no effect on subsistence income. More importantly, we also find that subsistence income increases, not just with the death rate as has recently been demonstrated in the literature, but also with productivity in manufacturing.