A Note on Agro-based Industry, Rural-Urban Migration and Factor Substitution

Abstract

Recently, considering the Harris-Todaro model (1970) where agricultural goods are used as industrial raw materials, Marjit (1991) showed that a wage subsidy in the urban industrial sector must increase urban as well as rural employment. But he assumed a production structure with fixed coefficients. In this note, we show that if factor substitution is allowed, a wage subsidy in the urban sector does not necessarily increase rural employment.