Development Economics at HECER. Channing Arndt. Dual Economy Models and Rural-Urban Migration

Transcription

1 Development Economics at HECER Channing Arndt Dual Economy Models and Rural-Urban Migration September 2016

2 Readings and curriculum M.P. Todaro and S.C. Smith, Economic Development, Addison- Wesley, 10th edition, Chapter 3 (pages ) K. Basu, Analytical Development Economics, MIT Press, Chapter 7 M.P. Todaro and S.C. Smith, Economic Development, Addison- Wesley, 10th edition, Chapter 7 (pages )

3 The Lewis model Capitalist-sector Modern sector, industry Use capital Employs workers Profit oriented (wage=mp) Subsistence-sector Traditional sector, agriculture Does not use capital Use family labour Wage equal to AP W. Arthur Lewis, 1958 Surplus labour Two central assumptions: 1. Traditional sector has surplus labour 2. Traditional sector pays the average product (income sharing) Surplus production of food Due to rural surplus labour the capitalists can hire (unlimited) amount of labour at a wage equal to the subsistence wage plus a markup 3

4 Wage = MP LM Total industry prod Total agric production The Lewis world Capitalist sector Subsistence-sector TP M (K M2 ) TP M (K M1 ) TP A (K A ) TP L A A W A Labour Labour W M D 1 (K M1 ) S D 2 (K M2 ) AP LA,MP LA W A MP LA AP LA L 1 L 2 Labour L A Labour

5 Wage and MP The Lewis model in Basu s extension Capitalists invest their profits. This increases the amount of capital in the formal sector and pushes upwards the marginal product curve As surplus labour disappears, the rural marginal product will increase A 2 A 1 An alternative representation of the Lewis model MP of urban labour MP of rural labour At the end (to the right of L T ), wages in both sectors increase together w L 1 B 1 B 2 L 2 0 M 0 R Total labour force L L T m Labour force in traditional/modern sector

6 Critiques/issues Labour absorption and investment Is entire profit invested? What about labour saving technology (next slide) Surplus labour assumption (can agriculture be neglected?) Competitive modern sector fixed w Does the capitalist class exist with appropriate skills? Can they sell all they produce? Rationality of entrepreneurs (the incentive to invest): Behavioural assumptions (optimize + in each period) In a two good economy: what happens to TOT Does TOT fall matter? Is the process inexorable (stagnation as a possibility) Nevertheless, movement of labor from low productivity sectors to high productivity sectors remains fundamental. 6

7 Growth without development 7

8 Chapter 7 Urbanization and Rural-Urban Migration: Theory and Policy

9 The Migration and Urbanization Dilemma Urbanization: trends and projections Copyright 2009 Pearson Addison-Wesley. All rights reserved. 7-9

10 Figure 7.1 Urbanization and Per Capital Income in Selected Countries Copyright 2009 Pearson Addison-Wesley. All rights reserved. 7-10

11 Figure 7.2 Urbanization across Time and Income Levels Copyright 2009 Pearson Addison-Wesley. All rights reserved. 7-11

12 Figure 7.3 Proportion of Urban Population by Region, Copyright 2009 Pearson Addison-Wesley. All rights reserved. 7-12

13 Figure 7.4 Megacities: Cities with Ten Million or More Inhabitants Copyright 2009 Pearson Addison-Wesley. All rights reserved. 7-13

14 Figure 7.5 Estimated and Projected Urban and Rural Population of the More and Less Developed Regions, Copyright 2009 Pearson Addison-Wesley. All rights reserved. 7-14

15 Figure 7.6 Annual Growth of Urban and Slum Populations, Copyright 2009 Pearson Addison-Wesley. All rights reserved. 7-15

16 The Role of Cities GOOD Agglomeration economies, Urbanization economies, Localization economies BAD First- city bias Urban Giantism Copyright 2009 Pearson Addison-Wesley. All rights reserved. 7-16

17 Table 7.1 Population of the Largest and Second-Largest Cities in Selected Countries (millions) Copyright 2009 Pearson Addison-Wesley. All rights reserved. 7-17

18 Figure 7.8 Importance of Informal Employment in Selected Cities Copyright 2009 Pearson Addison-Wesley. All rights reserved. 7-18

19 Migration and Development Rural-to-urban migration was viewed positively until recently The current view is that this migration is greater than the urban areas abilities to Create jobs Provide social services Copyright 2009 Pearson Addison-Wesley. All rights reserved. 7-19

20 A verbal description of the Todaro model Migration is a rational decision The decision depends on expected rather than actual wage differentials The probability of obtaining a city job is inversely related to the urban unemployment rate High rates of migration are outcomes of rural urban imbalances Copyright 2009 Pearson Addison-Wesley. All rights reserved. 7-20

21 Figure 7.11 Schematic Framework for Analyzing the Rural-to-Urban Migration Decision Copyright 2009 Pearson Addison-Wesley. All rights reserved. 7-21

22 Figure 7.12 The Harris- Todaro Migration Model Copyright 2009 Pearson Addison-Wesley. All rights reserved. 7-22

23 Toward an Economic Theory of Rural-Urban Migration WA L L M US ( WM) Where W A is agricultural income, L M is employment in manufacturing L US is total urban labor pool W M is the urban minimum wage Copyright 2009 Pearson Addison-Wesley. All rights reserved. 7-23

24 Five Policy Implications Reduction of urban bias Imbalances in expected income opportunities is crucial Indiscriminate educational expansion fosters increased migration and unemployment Wage subsidies and scarcity factor pricing can be counterproductive Programs of integrated rural development should be encouraged Copyright 2009 Pearson Addison-Wesley. All rights reserved. 7-24

25 Conclusion Dual economy one of several approaches No generally accepted paradigm -> development economics is difficult Differences are ideological, theoretical and empirical But there is also complementarity The importance of savings and investment Linkages and structural change Structure and working of the world economy Efficiency 25