The process of economic development is characterized by substantial reallocations of resources
across sectors. In this paper, we construct a multi-sector model in which there are barriers to the
movement of labor from low-productivity traditional agriculture to modern sectors. With the barrier
in place, we show that improvements in productivity in modern sectors (including agriculture) or
reductions in transportation costs may lead to a rise in agricultural employment and through terms-oftrade
effects may harm subsistence farmers if the traditional subsistence sector is larger than a critical
level. This suggests that policy advice based on the earlier literature needs to be revised. Reducing
barriers to mobility (through reductions in the cost of skill acquisition and institutional changes) and
improving the productivity of subsistence farmers needs to precede policies designed to increase the
productivity of modern sectors or decrease transportation costs.
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|Size: ||1.9 MB|
|Publisher: ||INTERNATIONAL MONETARY FUND|
|Date published: || 2015|
|ISBN: ||9781475550566 (DRM-EPUB)|
|Read Aloud: ||not allowed|