Sectoral Imbalance in Two-Sector Economy with Mobility Constraint and Firm Migration

Xi Hao Li () and Mauro Gallegati

MPRA Paper from University Library of Munich, Germany

Abstract: We consider a two-sector economy with a low-technology agriculture sector (sector A) and a high-technology manufacture sector (sector M). We investigate the scenario with mobility constraint that worker in sector A, when unemployed, has to afford the migration cost in order to move to sector M. By developing an agent-based two-sector model with computational simulation, we show that productivity growth localized at agriculture sector with mobility constraint leads to a decrease of agricultural market price, sectoral imbalance that workers are trapped unemployed in agriculture sector, and the overall economy experiencing economic downturn. In particular, localized productivity growth leads to both sectors bearing with high unemployment, low level of aggregate output, and low level of aggregate real wage income. Regarding remedy for the economic downturn under this scenario, we investigate the policy of firm migration such that agriculture firms can migrate to manufacture sector together with their employed workers. Agent-based study shows that this policy restores employment in both sectors, with a side effect of an increase of agricultural market price.

Keywords: two-sector model; agent-based economic modeling; productivity growth; sectoral imbalance; economic downturn; mobility constraint (search for similar items in EconPapers)
JEL-codes: C63 E17 E24 L5 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-bec, nep-cmp, nep-mac and nep-mig
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