Modern Sector Enlargement or Traditional Sector Enrichment? GNP Effects with Induced Migration

Abstract

This paper considers how GNP would change if development resources are allocated in alternative ways, taking account of induced migration. The preferred allocation of development resources between sectors is shown to depend on the amounts of modern sector enlargement and traditional sector enrichment that could be achieved under alternative resource allocations and the labor market effects of each. The practical significance of these results is the following. Using additional development resources to expand modern sector exports and employment is most efficacious when the marginal product of capital in the modem sector is high and the amounts of induced migration and employment low. In other circumstances - namely, when the marginal product of capital is higher in the traditional sector than in the modern sector and search unemployment widespread - allocating the development fund for purposes of traditional sector enrichment might be better.