DP1110 Unemployment, Investment and Sectoral Reallocation
|Author(s):||Bankim Chadha, Fabrizio Coricelli|
|Publication Date:||January 1995|
|Keyword(s):||Development, Investment, Restructuring, Unemployment|
|JEL(s):||E2, O1, P5|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=1110|
This paper presents a model of development of an economy comprised of a rural-agricultural sector and an urban-industrial sector. The interaction of investment with unemployment creates a channel for potentially divergent long-run outcomes. If the urban-industrial capital stock falls short of a threshold level, the urban-industrial sector will not develop. If the capital stock is high enough, there is a unique path by which it will develop. Between these two extremes is a region of indeterminacy where expectations can play a pivotal role in determining the long-run outcome.