Transcript Chapter 7 - University of San Diego Home Pages

Economic Development of Asia
Chapter 7
Urbanization and Migration
Urbanization and Migration
• As the economy develops, population moves from rural to urban
area
• Lewis’s Model-Agricultural worker with zero marginal
productivity move, so urbanization results in positive gain
• Strain on urban areas
• population concentrates in cities
• sanitary conditions, health facilities
• infrastructure problems
• schooling and education
• housing shortage and higher prices
• lower standard of living
Todaro’s Migration Model
• Decision to migrate is based on urban-rural differences in
expected earnings, rather than actual earnings.
• Refer to chart 7.11 on page 346
• A worker will migrate to the urban area if
Present value of
the net stream of
expected urban income
over the planning horizon
>
Expected rural income
• Net present value takes care of cost of migration
• Cost of migration
-
Opportunity cost
Transportation cost
Cost of living differential
Psychological cost (risk, social and cultural adjustment)
Level of Unemployment
• Level of urban unemployment affects expected urban
income based on the probability of finding a job
• The interesting result of the migration model with less
than full employment is that migration can continue
despite the sizable rate of urban unemployment
Policy Implications
1. Imbalances between urban-rural employment
opportunities must be reduced
2. Urban job creation is an insufficient solution for the urban
employment problem
• Migration responds to expected incomes and
probability of finding a job. Higher employment level
in urban area leads to higher P of finding a job, more
migration and more urban unemployment.
Policy Implications
3. Indiscriminate educational expansion may also lead to
more migration and more urban unemployment
In the face of high unemployment, employers may
require higher and higher education as a rationing device
workers go for higher and higher education
4. Wage subsidies to employers is also counter productive
5. Programs of integrated rural development must be
encouraged policies that regulate supply of labor to urban
areas will be more effective
Read page 350-354 and list 5 different ways of
achieving urban-rural balance and rural
development