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

17 Pages Posted: 31 Jul 2015 Last revised: 7 Aug 2015

See all articles by Xi Hao Li

Xi Hao Li

Università Politecnica delle Marche - Department of Economics

Mauro Gallegati

Università Politecnica delle Marche - Faculty of Economics

Date Written: July 1, 2015

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

JEL Classification: C63, E24, L52

Suggested Citation

Li, Xi Hao and Gallegati, Mauro, Sectoral Imbalance in Two-Sector Economy with Mobility Constraint and Firm Migration (July 1, 2015). Available at SSRN: https://ssrn.com/abstract=2638210 or http://dx.doi.org/10.2139/ssrn.2638210

Xi Hao Li (Contact Author)

Università Politecnica delle Marche - Department of Economics ( email )

Piazzale Martelli 8
Ancona, Marche 60121
Italy

Mauro Gallegati

Università Politecnica delle Marche - Faculty of Economics ( email )

Piazzale Martelli, 8
60121 Ancona
Italy
++390712207188 (Phone)
++390712207102 (Fax)

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