Abstract
This article analyzes a salient feature of LDCs, namely that of the coexistence of traditional and modern agricultural techniques during economic development. A three-sector, two-commodity general equilibrium model is specified and migration takes place from backward agriculture to a modern agricultural and a modern manufacturing sector. The consequences on urban unemployment, welfare, size of the backward sector etc. of general and selective labor and capital subsidies and a migration tax are clarified. A labor subsidy does not, under any factor intensity assumptions, have an unambiguously decreasing effect on unemployment. A tax on the urban labor force lowers unemployment and raises welfare.
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