Abstract
In analyzing the implications of rural-urban migration in the presence of efficiency wages and external economies of scale in the urban sector, this paper focuses on structural transformation of a developing dual economy. It compares the agglomeration effects in the urban sector under exogenous wage distortion with that under exogenous wage distortion and external economies of scale and also with the agglomeration under efficiency wages and external economies of scale. It shows that because of the employment enhancing effect of rural-urban migration with efficiency wages, the agglomeration economies are bigger with efficiency wages than with minimum wage distortion in the Harris-Todaro model. In exploiting the existing external economies of scale, this agglomeration reduces the sectoral wage differential, and changes the effects of factor accumulation and commodity price changes in a way that is different from the effects under migration with exogenous wage distortion.
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