Urbanization and structural change in an endogenous growth setting

Abstract

This thesis studies the implications of a Romer-type endogenous technological growth on urbanization and structural change using a two-sector, continuous-time growth model. We make use of the tight link between urbanization and structural change by assuming that industrial and agricultural sectors are located in urban and rural areas respectively. We present two models. First model assumes perfect labor mobility between rural and urban sectors such that wage rates are equalized between the two sectors. The implication of such an assumption together with the existence of an externality from urban production is that there are multiple equilibria and no transitional dynamics. Main aggregate variables grow at the same rate at the steady state but the model can account for both increasing and decreasing patterns of prices. For the plausible case, we find that urbanization level is related positively with the taste in urban goods, negatively with the share of labor in rural sector, positively with the share of labor in urban sector and related negatively with the discount factor. Second model we present features imperfect mobility of labor between the two sectors, where migration function is increasing in the wage gap between urban and rural sectors. The implication is that there are transitional dynamics on a single equilibrium path, where both the urbanization level and the urban consumption to capital ratio increase, for a given initial level of urbanization.