Changes in the Supply of Public Intermediate Goods, Fixed Wage, and the Relative Price in the Harris-Todaro Model

Abstract

Since the Harris-Todaro model was proposed in 1970, it has played a crucial role in analyzing various environmental and trade issues in developing countries. This paper analyzes the effects of the amount of public intermediate goods provided by the government, the increase in the fixed wage rate in the urban sector, and the changes in the relative international prices of agricultural and manufacturing goods on labor employment, unemployment, and the economic welfare in the context of a small open economy. It also proposes relevant policies to reduce the unemployment rate while improving national welfare.