Policy comparisons with an agglomeration effects-augmented dual economy model

In this paper we incorporate urban agglomeration economies as a labor pull factor in an analysis of dual labor markets in LDCs. In particular, the equilibrium city-size approach to urban growth and the expected income approach to rural-to-urban migration are synthesized, making it possible to generalize results that hitherto were approach specific. With the aid of a simulation based on a well-specified model, we exploit this synthesis to rank subsidy policies. Our results highlight the constructive role played by urbanization in economic development and structural change.