Working Paper: CEPR ID: DP1110
Authors: Bankim Chadha; Fabrizio Coricelli
Abstract: This paper presents a model of development of an economy comprised of a rural-agricultural sector and an urban-industrial sector. The interaction of investment with unemployment creates a channel for potentially divergent long-run outcomes. If the urban-industrial capital stock falls short of a threshold level, the urban-industrial sector will not develop. If the capital stock is high enough, there is a unique path by which it will develop. Between these two extremes is a region of indeterminacy where expectations can play a pivotal role in determining the long-run outcome.
Keywords: unemployment; development; restructuring; investment
JEL Codes: E20; O10; P50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| investment (G31) | no development (Y70) |
| urban capital stock (R53) | unemployment (J64) |
| unemployment (J64) | employment (J68) |
| capital stock (E22) | development trap (O11) |
| initial conditions + expectations (D84) | multiple equilibrium paths (D59) |