Summary
A two-sector model for developing countries explicitly takes into account the influence of consumer goods rationing on the labour supply for market production and considers the effects of fiscal policy and exchange rate policy on the production of agricultural and urban goods. An increase in government expenditures depresses agricultural production. A devaluation may be counterproductive since it may lead to a decline in both the production of non-traded goods by raising the costs of imported inputs, and in the production of traded goods by affecting labour supply. Finally, import rationing may lead to a deterioration of the trade balance.
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The author would like to thank Professor W.H. Buiter, Professor J.W. Gunning, Professor H. Jager, and an anonymous referee for useful comments on an earlier version of this paper. I am especially grateful to Ger Lanjouw and Edmar Sprokholt for their stimulating remarks on the subject of this paper and for providing me with new ideas.
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Lensink, R. A model of rural-urban conflict in developing countries. De Economist 140, 83–108 (1992). https://doi.org/10.1007/BF01849805
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DOI: https://doi.org/10.1007/BF01849805