The Role of Institutions in Rural-Urban Migration and Urban Unemployment in LDCs: With and Without Changing Level of Indebtedness of the Peasantry

Abstract

This paper attempts to formalise and integrate the roles of "rural push" and "urban pull" factors in rural-urban migration and urban unemployment. Perpetual indebtedness of the peasantry and a monopolistic moneylender, combined with the Harris-Todaro framework, constitute the model. Analysis reveal that such measures might fall short of their goal since the moneylender syphon off part of the benefits that are supposed to accrue to the workers. Possibilities of non-existence of equilibrium and multiple equilibria are pointed out in this model.