Rural–Urban Migration, the Informal Sector, Urban Unemployment, and Development Policies: A Theoretical Analysis

Abstract

This paper develops a theoretical model like Gupta’s to show the simultaneous existence of the urban informal sector and open unemployment in the urban sector in a Harris–Todaro type of model of rural–urbanmigration. A wage or a price subsidy policy to the rural sector, or a demand management policy like an export promotional scheme in the manufacturing sector, reduces the urban unemployment level, and provides a theoretical basis for the introduction of export promotional measures like the formation of duty‐free Export Processing Zones (EPZs) to solve the urban unemployment problem. The policy conclusions of the present paper are different from those found in Gupta’s 1993 model.