Economies of Developing Countries Many Essay

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Harris and Todaro (1970) admit that a limitation of the Todaro model is that assumes potential migrants are risk neutral agents. In fact, they may well prefer a certain expected rural income vs. An uncertain expected urban income. In the real world, risk aversion could make them choose the rural option or to wait for an offer of higher urban income to make the risk of uncertain employment prospects worth their while. But, Harris and Todaro (1970) argue that they could easily adapt their model to reflect risk aversion and would still reach the same conclusions.

In summary, policies aimed at reducing urban unemployment can actually raise urban unemployment rather than reduce it as the Todaro paradox demonstrates.

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According to Todaro and Smith (2002), there are important conclusions to be drawn from the Todaro model of rural-urban migration including:

Creating urban jobs does not solve the urban unemployment problem because it encourages more migration.

Expanding education opportunities often results in more urban migration and thus, higher urban unemployment.

Offering urban wage subsidies is counterproductive because they encourage more migration by increasing the probability of finding a job.

Therefore, Todaro and Smith (2002) recommend reducing the urban bias of development strategies and encouraging integrated rural development in order to help reduce the wage differential between the urban and rural area......

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