Harris Todaro Model Analysis

Economic Model:

We will analyze two economic models. One is Harris- Todaro migration model and another is Lewis theory of development. By these two models we will explain why people are leaving rural areas or in other words why urbanization is increasing and why the output of agricultural sector is not increasing.

Harris Todaro Model:

The Harris-Todaro model explains that why people are migrating from rural area to urban area despite the lower opportunity of full employment in urban areas. In this model the decision of rural –urban migration is assumed as rational. And this decision is based on the difference between the expected rural income and expected urban income rather than difference between only real wages. (Economic Development; Michael

OAOM depicts the total labor force.

In a neo-classical free market model the equilibrium wages at WA*=WM*, where OALA*workers are involved with agricultural sector and OMLM*workers are in manufacturing sector. But in this model urban wage rate is fixed institutional at W”M. Now we assume that OMLM workers are employed in urban areas and the remaining OALM workers are employed in rural areas at OAWA**wages. Therefore there is a wage gap between rural and urban areas which is W”M - WA**, where W”Mis fixed. Now if the rural workers OALM would have moved to urban areas then the possibility or probability to get a job in urban areas is expressed by---- WA= (LM/ LUS). (W”M) Where, W”M= Fixed wage rate in urban areas WA= Agricultural wage rate LM= Labor force in manufacturing sector LUS= Total urban labor

Day by day the number of people in urban areas is increasing. And they are leaving their traditional agricultural sector and by this process urbanization is increasing.

The Lewis Theory of Development:

One of the best- known early theoretical models of development that emphasized on the structural changes of a primarily subsistence economy was that constructed by Nobel winning economist W. Arthur Lewis in 1950 and then modified and expanded by John Fei and Gustav Ranis (Economic Development; Michael P. Todaro, Stephen C. Smith; Page- 115)

This two-sector model was the general theory of development in excessive –labor developing countries and still it is being used for studying the growth in developing countries.

In this model, there are two sectors- one is rural subsistence sector and another is urban industrial sector. This model emphasizes on the labor migration and also on the output growth and employment in the industrial sector. The output growth is occurred by the investment and capital accumulation in the modern sector. And this investment happens because capitalists invest their all profits again.

Lewis assumed that in industrial sector the level of income was constant. Now we will explain this model by the following