The Role of Productivity, Transportation Costs, and Barriers to Intersectoral Mobility in Structural Transformation

Author/Editor:

Cem Karayalcin ; Mihaela Pintea

Publication Date:

April 30, 2015

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 15/91

Subject:

English

Publication Date:

April 30, 2015

ISBN/ISSN:

9781484350058/1018-5941

Stock No:

WPIEA2015091

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

30

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