A Simple Treatment of the Generalized Harris-Todaro Model

The object of this chapter is to provide a comprehensive treatment of the generalised Harris-Todaro model (henceforth called GHT) which underlies several chapters in this book. The original Harris-Todaro model. (hereforth called HT) was generalised to include non-traded goods by Hazari. and Sgro (1991). The HT model was developed to explain internal migration and urban unemployment in the context of Third World Countries. This model consisted of two regions: urban and rural; two internationally traded goods, manufacturing and agricultural; a minimum urban wage and a migration function1. This general equilibrium structure resulted in urban unemployment due to the presence of a minimum wage and via migration of rural workers to urban areas from the expected wage mechanism. We do not offer a view of migration based on the work of Stark (1991). His explanation of internal migration is based on variables such as insurance provided by having children so that one can be looked after when old, fertility, family connections and other variables. While these ideas are interesting they are not amenable to general equilibrium modeling as practiced by trade theorists. Moreover, too much neo-classical rationality is attached to the migration decision of poor and illiterate people who have negligible knowledge of the functioning of contingency markets, discounting and various other variables mentioned in Stark’s work.