A Model of Development: The Dynamic Analysis

This chapter introduces dynamics into our model of development and presents migration functions alternative to those usually employed in the literature. The migration of both the high and low skilled workers from the rural to the urban area are considered. The migration flow is viewed as consisting of two distinct streams with separate incentives—one group migrating to the informal sector where wages are competitively determined, and the other group to the formal sector with jobs mostly prearranged. The questions of structural change, rural-urban migration and the evolution of income distribution are addressed in this chapter, using numerical simulations. A major aim has been to see under what conditions we do or do not get an inverted U-shaped curve of income distribution. The explanations offered for the existence or non-existence of the inverted U-curve have not in general incorporated the role of the informal sector in any systematic way. We find that the tendency always is for the Gini coefficient to rise and then decline. However, once it starts declining, it need not continuously decline; it may rise, then decline, then rise again and indeed rise above the previous peak before starting to decline again and may well end at the end of the simulation at a higher value than at the start. Any case for the redistribution of income is seen to be much stronger at the later stages of development than at earlier stages, even though at later stages, Gini coefficient may be lower than at earlier stages. The policy implications of the findings are considered.