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

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Listed:
  • Li, Xi Hao
  • Gallegati, Mauro

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.

Suggested Citation

  • Li, Xi Hao & Gallegati, Mauro, 2015. "Sectoral Imbalance in Two-Sector Economy with Mobility Constraint and Firm Migration," MPRA Paper 66002, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:66002
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    References listed on IDEAS

    as
    1. Ruggero Grilli & Gabriele Tedeschi & Mauro Gallegati, 2015. "Markets connectivity and financial contagion," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 10(2), pages 287-304, October.
    2. Tesfatsion, Leigh & Judd, Kenneth L., 2006. "Handbook of Computational Economics, Vol. 2: Agent-Based Computational Economics," Staff General Research Papers Archive 10368, Iowa State University, Department of Economics.
    3. Tesfatsion, Leigh, 2006. "Agent-Based Computational Economics: A Constructive Approach to Economic Theory," Handbook of Computational Economics, in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 16, pages 831-880, Elsevier.
    4. Luca Riccetti & Alberto Russo & Mauro Gallegati, 2015. "An agent based decentralized matching macroeconomic model," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 10(2), pages 305-332, October.
    5. Leigh Tesfatsion & Kenneth L. Judd (ed.), 2006. "Handbook of Computational Economics," Handbook of Computational Economics, Elsevier, edition 1, volume 2, number 2.
    6. Dosi, Giovanni & Fagiolo, Giorgio & Napoletano, Mauro & Roventini, Andrea, 2013. "Income distribution, credit and fiscal policies in an agent-based Keynesian model," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1598-1625.
    7. Andrea Teglio & Marco Raberto & Silvano Cincotti, 2012. "The Impact Of Banks' Capital Adequacy Regulation On The Economic System: An Agent-Based Approach," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 15(supp0), pages 1-27.
    8. Gatti, Domenico Delli & Gallegati, Mauro & Greenwald, Bruce C. & Russo, Alberto & Stiglitz, Joseph E., 2012. "Mobility constraints, productivity trends, and extended crises," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 375-393.
    9. Domenico Gatti & Saul Desiderio, 2015. "Monetary policy experiments in an agent-based model with financial frictions," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 10(2), pages 265-286, October.
    10. Domenico Gatti & Mauro Gallegati & Bruce C. Greenwald & Alberto Russo & Joseph E. Stiglitz, 2012. "Sectoral Imbalances and Long-run Crises," International Economic Association Series, in: Franklin Allen & Masahiko Aoki & Jean-Paul Fitoussi & Nobuhiro Kiyotaki & Roger Gordon & Joseph E. S (ed.), The Global Macro Economy and Finance, chapter 4, pages 61-97, Palgrave Macmillan.
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    More about this item

    Keywords

    two-sector model; agent-based economic modeling; productivity growth; sectoral imbalance; economic downturn; mobility constraint;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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