Technical Progress, Terms of Trade and Welfare in a Mobile Capital Harris-Todaro Model

Recently, several trade theorists have investigated the implications of economic growth for a small economy in the mobile capital version of Harris-Todaro (1970) model of unemployment.1 Corden and Findlay (1975) have analyzed the effects of factor accumulation and technical progress. They show that assuming a relatively capital-intensive manufacturing sector, the Rybczynski theorem and “ultrabiased” effect of technical progress on sectoral outputs derivable from the standard Heckscher-Ohlin-Samuelson model carries over to the Harris-Todaro (H-T henceforth) model with intersectoral capital mobility. Extending the analysis of Corden and Findlay, Neary (1981) has derived the necessary and sufficient condition for the stability of the model that an unspecialized long-run equilibrium is dynamically stable, if and only if the urban sector (i.e., manufacturing plus urban unemployed) is capital-abundant relative to the agricultural sector.2 Recently, Beladi and Naqvi (1988) have shown that for a small country, economic growth resulting from either technical progress or factor growth cannot be immiserizing in the H-T model.