UNEMPLOYMENT, MIGRATION, AND GROWTH

Economic development is typically accompanied by migration from rural to urban employment. This migration is often associated with significa nt urban underemployment. Both factors are important in the developmen t process. We consider a neoclassical growth model with rural-urban mi gration and urban underemployment, which arises from an adverse select ion problem in labor markets. We demonstrate that rural-urban migratio n and underemployment can be a source of development traps and can giv e rise to a large set of periodic equilibria displaying undamped oscil lation. Many such equilibria display long periods of uninterrupted gro wth, punctuated by brief but severe recessions.