Rural.docx

Rural-urban migration has long been associated with economic development and growth in the economic literature. In particular, Todaro and Harris-Todaro-type probabilistic models that examine migration have concentrated on the expected wage disparities between rural and urban (formal) labor markets as a driving force behind migration decision. These models, which are static and partial equilibrium in nature, have virtually ignored the cost-of-living differentials across regions that arise from the presence of regional non-traded (home-) goods. Moreover, even in dynamic general equilibrium models, equations specifiying labor market clearing conditions have neglected to recognize a missing endogenous variable, the households’ choice of residency, and the corresponding equations necessary to cause the labor market to clear as well. Effectively, adding these conditions to the model allows agents to move from one region to another and to bring their utility function and budget constraint with them to the new region of residency. This condition profoundly affects the spatial distribution of economic activity. Furthermore, when factor market imperfections are modeled, e.g., the segmentation in labor and capital markets across regions, these factors earn different rates of return thus greatly influencing the pattern of spatial economic development. The main objectives of this paper are to model the residency choice decision in the context of a dynamic general equilibrium economy, to identify the channels through which segmentation in capital markets in developing countries induces migration from rural to urban regions, and to explain how uneven economic growth may emerge as a consequence. This paper incorporates cost-of-living and income differentials across regions into the migration decision of households in a dynamic general equilibrium setting. With the use of a dynamic general equilibrium model, we can capture the migration pattern as a response to ch

Until recently, research on rural—urban migration in less developed countries has been largely dominated by the work of geographers, demographers and sociologists. For the most part, economists have preferred to ignore migration while operating within the confines of their traditional ‘two-sector’ models. In the case of a ‘closed’ economy these sectors usually consisted of the agricultural and the industrial with the implicit understanding that one could substitute ‘rural’ for ‘agricultural’

and ‘urban’ for ‘industrial’. Emphasis has been placed on traditional economic variables such as output growth rates, terms of trade, savings and investment, and relative efficiency. The efficient allocation of human resources between sectors, if discussed at all, has been assumed to be a natural out-growth of a self-adjusting mechanism which functioned to equate sectoral marginal productivities. Rural—urban migration was portrayed as a manifestation of this self-adjusting mechanism (with its implicit full-employment assumptions) and, as such, was not deemed to be of sufficient intrinsic importance to warrant detailed theoretical and empirical investigation.

The practical innovations include promoting availability of public financing in rural areas, greatly increasing public spending for agriculture, the countryside and rural residents and making the tax burden more fairly distributed between the cities and the countryside by rescinding the agricultural tax, slaughter tax, animal husbandry tax and tax on special agricultural products. Another practical innovation was to improve the balance between industrial and agricultural development by granting direct subsidies to grain producers, subsidies for planting superior seed varieties, subsidies for the purchase of farm machinery and tools and general subsidies for agricultural supplies, and setting floor prices for state grain purchases. We are working to make the level of basic public services the same in urban and rural areas and providing free compulsory education in the countryside, and have set up a new-type cooperative medical care system and a cost of living allowance for rural areas and started trials for a new pension insurance system for rural residents. We are integrating the public infrastructure system of urban and rural areas, providing safe drinking water, building or repairing rural power grids, rural highways and methane facilities in many rural areas and repairing or replacing dilapidated and dangerous rural housing. We are working to ensure that urban and rural residents have equal access to employment by developing a unified labor market, strengthening protection and guarantees for the rights and interests of migrant workers from the countryside and gradually easing restrictions on rural workers wishing to settle in cities.