HEARD PhD Scholarship 2021 for African Students

Name: ugorji Ijeoma Judith
Regno: 2017/243088
Email: ijeoma.ugorji.243088@unn.edu.ng
Blog address: peppyxperience.blogspot.com
Department: economics.
Answer
INTRODUCTION
In times past, various economists have come up with different approaches and models of economic growth in a bid to explain and possibly proffer solution(s) to the patterns and problems of economic growth of developing countries. This approaches ranges from the linear stages of growth model to the structural change models down to the traditional neoclassical growth theories.

Various types of growth models include the Harrod-Domar growth model which highlights the mobilization of domestic and foreign savings to generate investment and hence economic growth. The Solow growth model also known as the exogenous growth model analyses the changes in the levels of economic growth (output) over time as a result of the changes in the population growth rate and the rate of technological process. The endogenous growth model is another model placing more emphasis on internal factors which brings about economic growth than external factors. These internal factors according to the model includes improvement in innovation, knowledge, and human capital. There is the Lewis growth model which divided the economy of an underdeveloped nation into subsistence sector and the capitalist sector and then the Harris- Todaro growth model of migration. These models however have their strength and weaknesses.

Harris -Todaro model of migration
The model is named after two economists John R. Harris and Micheal Todaro who developed it in the year 1970. The model is used in development and welfare economics to explain some of the phenomena concerning rural-urban migration as it affects economic growth of developing countries. Harris-Todaro model just like Lewis model divided the economy into two sectors(region);
The rural region (agricultural) and the urban region (industrial) in order to explain the influence or rural-urban migration and critical urban unemployment problems in developing countries.

The model tries to answer the question “why rural-urban migration is still taking place despite high unemployment in urban areas. The model sees migration as an economic decision. People migrate on the basis of wages and probability of unemployment. Migrants take into account present value of urban expected income or it’s equivalent and then move if it exceeds average rural income.
The model assumes that the urban minimum wage is set to be higher than the wage rate paid to rural labour. This results in a wage differential between the two sectors. Rural workers have an incentive to migrate to the urban areas despite of increasing level of urban unemployment, because of the potential of higher earnings in the urban sector brought about by a high concentration of Industries in the cities.
Such migration will continue as long as there is a possibility for migrants to increase their income by moving to a city. Some migrants will have arranged employment before leaving the countryside. Others will begin job search only once they have arrived at their destination, while some still will join the pool of urban unemployed with the hope of finding a meaningful and sustaining means if livelihood in the future. This explains why there is a continuous flow of migrants observed in developing countries irrespective of the high unemployment rates.

BASIC ASSUMPTIONS OF HARRIS-TODARO GROWTH MODEL
Migration is primarily an economic phenomenon based on private rational economic decisions.
Wage difference (wage gap) between the two sectors of the economy. Migration proceeds in response to urban-rural differences in expected earnings rather than actual earnings and the urban employment rate acting as an equilibrating force on such migration.
The model also assumes that potential migrants are risk neutral where the poor migrants will likely be risk aversive in that they are indifferent between a certain a certain expected rural income and an uncertain expected urban income.
They also assume that there is a perfect competition and there is no unemployed in rural agricultural sector. Although this was countered as unrealistic.

Harris-Todaro two sectors model is characterised by the following;
Real wages (adjusted for cost of living difference) were higher in urban sector jobs than in the rural traditional sector jobs.
To be hired for a formal sector job, it was necessary to be physically present in the urban areas where the jobs were located.
More workers searched for the industrial sector jobs than were hired leaving the many others to join the league of the unemployed.
To maintain the equality between the expected wage associated with searching for an urban job and the expected wage associated with taking up a lower paying rural job, the equilibrium arising in such a setting would be characterised by urban unemployment.
Any temporary difference in the expected wage between one sector and another would be eroded as workers migrate from the low expected wage labour market to the high expected wage labour market.

A graphical illustration of the Harris-Todaro two sector model of migration.
Fig 1. Harris-Todaro model.

The graph above explains the Harris-Todaro two sector model where there is declining marginal productivity in both sectors. Hence, the higher the wage is, the lower the demand for workers in both sectors (according to law of demand for labour).
Total labour force is represented by L, and it does not depend on wages. There are LA workers in agricultural sector and LM workers in the mirdern sector and the remaining Lu are unemployed. If we assume a flexible wage in both sectors then we get equal wages in both agricultural and modern sector and no unemployment. The situation is depicted in the diagram above, where AA curve is the demand for labour in agricultural sector and MM curve is the demand for labour in the modern sector.

COMPARISON OF THE HARRIS-TODARO MODEL OF MIGRATION WITH THE LEWIS MODEL OF MIGRATION
The Harris-Todaro model of migration has a basic similarity with the Lewis model if migration in that both models adopted the system of two sector model in their analysis. While Harris-Todaro two sector model is divided into the rural (agricultural sector) and urban (modern/industrial sector), Lewis two sector model on the other hand comprises of the subsistence sector and the capitalist sector. Lewis mentioned that of the two sectors, the capitalist sector is predominant. He defined the capitalist sector as “that part of the economy which uses reproducible capital, pays capitalists for the use thereof and employs wages labour for profit making purpose”.

The distinguishing feature of a capitalist sector is that it hires labour from the subsistence sector at a given wage rate and sells output to earn profit. The subsistence sector on the other hand is that part of the economy which does not use reproducible capital. Labour is abundant and disguised unemployment is the result. The Lewis model auggests that the capitalist sector to be expanded by transferring labour from the subsistence (rural) sector to the capitalist sector because he assumes that the supply of labour is perfectly elastic at the subsistence wage. However this was a major criticism of the model. The model assumes a constant wage rate in the capitalist sector until the supply of labour is exhausted from the subsistence sector. This is unrealistic as a result of the continuous increase in the wage rate overtime in the industrial sector of an underdeveloped economy even when there is open unemployment in it’s rural sector. From this , the following deductions can be made on comparison of the two models;
Both models adopts two sector model in their analysis.
Harris-Todaro model tries to explain why there is continuous increase in rural-urban migration despite increasing rate of unemployment in the urban sector while Lewis model suggest for migration of labour from subsistence sector to the capitalist sector.
Lewis model is interested in the expansion of the capitalist sector at the expense of the subsistence sector.
Harris-Todaro model assumes no unemployment in the rural area, Lewis on the other hand assumes a disguised unemployment in the rural (substantence sector).
Harris-Todaro model operates in the short run while Lewis model operates in the long run.
Both assumes fixed wage rate in the urban sector.
Significance of thE HARRIS-TODARO MODEL OF MIGRATION.
The fundamental contribution if Harris and Todaro’s two sector model of migration was to build a model that fits the stylized facts of the labour market. On the lines if the theory, developing nations adopted program on integrated rural development which encouraged an increase in the rural traditional sector wage. The theory proves that the higher the unemployment rate in the urban area, the lower is the probability of migrants from the rural to the rural area actively seeking formal sector employment who are unable to find it. The significant findings of the model are;
Firstly, if expected urban wage equals rural income, there is no incentive to migrate.
Secondly, if the expected urban wages is greater than the rural income, there is great incentive to move from rural to urban migration.
Thirdly, if the expected urban wages is less than rural income, there would be an incentive to move in other direction.
Lastly, the expected urban wage depends on what type of job migrants are engaged in.
LIMITATIONS OF THE MODEL
Some of the assumption of the Harris-Todar’s model were judges to be too restricted. The model also assumes that’s the potential migrants are risk neutral where the poor migrants will likely be risk averse as in they are indifferent between a certain expected rural income of the same magnitude. The assumption that there exists a perfect competition in rural agricultural sector is not realistic.
Implications and conclusion
The migration of labour from rural to urban area is an important part of urbanisation in the developing nations. Infact, it is the major source of labour for industries mostly concentrated in the modern sector. The question is, to what extent is internal migration a desirable phenomenon and under what circumstances?. There is need for government of developing nations to encourage programs that would boost the rural sector economy and encourage more people to stay back. This would reduce the increasing rate of unemployment in the urban area.
Considering developing nations of Africa and taking Nigeria as a case study, the migration of labour from rural sector to urban sector is evident in the over population, increase in crime rate and unemployment that characterizes the industrialised urban area. Young people tend to leave the rural areas which are majorly villages and small towns characterised by majorly subsistence agriculture and other menial jobs as blacksmith, carpentery, craftsmanship, petty trades to mention a few with little or no industries in search of “greener pastures” in forms of better paying jobs with good working conditions that would eventually lead to a better or higher standard of living. The rural sector is therefore left to the weak and aged who are mostly farmer and could produce little that would sustain them to say nothing of any surplus to sell to the urban area. This leads to reduction in production of agricultural sector.
LEWIS-FEI-RANIS MODEL OF SURPLUS THEORY.
The Lewis model of surplus labour is an example of structural-change theory which focuses on the mechanism and strategies by which underdeveloped economies transform their domestic economic structure from a more dominant rural agricultural sector to a more urbanised industrial economy.
The surplus labour theory one of the best known early models of development was developed by Nobel laureate W. Arthur Lewis in the 1950s and was later modified and extended by John Fei and Gustav Ranis. The Lewis-Fei-Ranis model of surplus theory was named after these there men.
The surplus labour theory uses the analysis of two sector model in explaining growth experiences of developing nations. These two sectors are the traditional rural subsistence sector characterised by surplus labour (the excess supply of labour over and above the quantity demanded at the going free market wage rate). And the modern urban sector with high industrialization. This the Lewis model also calls the capitalist sector. The surplus theory assuming zero marginal productivity of labour in the rural sector posits that surplus labour should be transferred from the overpopulated rural sector to the high productive industrial sector. The model focuses on the movement/transfer of surplus labour from the rural to the urban sector and also the growth of the industrial urban sector in terms of output and employment. It is majorly interested in the growth and expansion of the modern sector.

Assumptions of the model
The model assumes the economy is divided into two sector, traditional rural sector and urban industrial sector( the capitalist sector).
There exists surplus labour in the traditional rural sector
There is mobility of labour from the rural to urban area.
The model assumes there is a perfectly competitive labour market in the modern sector given fixed wage rate and horizontal supply of labour.

Explaining the Lewis model
Given the subsistence and capitalist sector where the subsistence sector is identified with agriculture and considered labour intensive. Poor technices of production are employed Which leads to low productivity. It does not use reproducible capital. The capital sector on the other hand implies mainly the manufacturing sector of the economy where hired labour is required for the purpose of mass production and which can be private or public in nature.
The model opined that if a wage higher than the institutional wage prevailing in the subsistence sector by a certain proportion of the institutional wage is fixed in the capitalist sector. that is, if the labour wage in the capitalist sector is higher than what is obtained in the rural area then the capitalist sector have an an incentive to obtain more labour force from the rural area.
By so doing, the manufacturing sector is expanded and growth is experienced. More wealth is created and hence savings is increased. This increase in savings leads to capital accumulation. Investment is increased. More investment therefore means more employment of labour from the subsistence rural sector.
This process of capitalist (modern sector ) self sustaining growth and employment expansion is assumed to continue until the surplus rural labour is absorbed in the new modern sector, there after additional can be withdrawn from the subsistence sector only at a higher cost of food production because the declining labour to land production means that the marginal product of rural labour is no longer zero.
Criticism of the model
Even though the Lewis two sector model of development to a large extent relects the growth experiences of many developing countries, some of it’s basic assumptions has been brought under questioning and is considered invlid. These criticism include but not limited to;
The Lewis model is of the notion that surplus labour exists in the rural areas while there is full employment in the urban sector. However, most recent development economists are of the opinion that this notion not always true although there is seasonal and geographical exception to this. Labour availability varies by geographical and seasonal conditions.
Another criticism of the model is its assumption of a perfectly competitive modern market which guarantees continues existence of constant real urban wages up to the point where the supply of rural labour is exhausted. This assumption is considered not to hold as wages in modern sector are not constant but rises substantially over time birh in absolute terms and in relation to average rural wages. Institutional factors such as trade union bargaining power , civil service wage scales tends to oppose competitive forces in modern sector labour market in developing countries.
The model was also criticized for assuming diminishing returns in modern industrial sector when infact increasing returns are evidenced as prevailing in industrial sector.

IMPLICATION OF THE MODEL AND CONCLUSION.
The Lewis model analysis is obviously expressed in the growth experience of developing countries, Nigeria inclusive and most expecially China in recent times. It is common for labour to be shifted from the rural agricultural sector to the urban industrialised sector of the economy for the purpose of hiring in the manufacturing and service sectors to boost production.
This leads to expansion of the modern sector at the expense of the agricultural rural sector. An extreme effect would result in decline in agricultural productivity and eventually rise in price of essential goods such as food which is a major product of agriculture. This would also lead to increase in the price of industrial inputs such as raw materials from agriculture. In the long run, unemployment rate would increase in the modern sector.