APPENDIX Key Additional Identities and List of Variables
Key Additional Identities
Gross Domestic Product by Expenditure
Household Disposable Income
External Current Account
Government Overall Balance
List of Variables
CG = real public consumption
CIi = real consumption of intermediate good addressed to sector i (i = 1,2,3,4)
CP = real aggregate private consumption
CPi = real consumption of good i; i = 1,3,4
DG, DP = stock of net domestic government, private debt
IDG, IDP = stock of net foreign government, private debt
Ip = real private investment
I = domestic investment
K3 - stock of capital in the urban modern sector
Li = employment in sector i;i = 1,2,3,4
LId = demand for labor in the AF sector
L3d = demand for labor in the Um sector
Lr = total rural labor force
Lu = total urban labor force
M3 = real imports of manufactured goods
= notional demand of imports
Mig = rural-urban migrations
Ni = intermediate inputs used in sector i;i = 1,2,3,4
P1 = price index of agricultural food crops
P2 = domestic currency price index of agricultural exports
P3 = price index of domestically produced manufactured goods
P4 = price index of nontraded services
PC = general consumer price index
PC1 = consumer price index of agricultural food crops
PC3 = consumer price index of manufactured goods
PC4 = consumer price index of nontraded services
PD3 = price index of the domestic absorption of manufactured goods
PI = investment price index
PM = domestic currency price index of imports
PG = price index of public consumption
PNi = price index of the intermediate consumption of sector i (i = 1, 2, 3, 4, g)
PVi = price index of value added in sector i; i = 1, 2, 3, 4
Qi = real output of sector i; i = 1,2,3,4
QD3 = real domestic absorption of manufactured goods
Rr = agricultural revenue
Vi = real value added of sector i; i = 1, 2, 3 A g
W3 = nominal wage rate in the urban modern sector
W4 = nominal wage rate in the urban informal sector
Wg = nominal wage rate in the public sector
Wu = nominal wage rate in the urban private sector
Wr = nominal agricultural wage rate
X2 = real agricultural exports
X3 = real exports of manufactured goods
= notional supply of manufactured exports
Y = nominal GDP
YD = nominal household disposable income
E = nominal exchange rate
Ig = real public investment
Lg = public employment
Ng = real government purchases of intermediate goods
IP2 = international price index of agricultural exports
IP3 = international price index of manufactured exports
IPM = international price index of manufactured imports
irg’irp = foreign interest rate on public and private debt
rg’rp = domestic interest rate on public and private debt
TE = export tax index
TM = import tax index
TC = index of indirect taxes on consumption
TI = index of indirect taxes on investment
te = implicit export tax rate
tm = implicit import tax rate
tc = implicit tax rate on consumption
ti = implicit tax rate on investment
λr = biological growth rate of rural labor force
λu = biological growth rate of urban labor force
λg = growth rate of public wages
π = exogenous sources of household disposable income
Bodart, Vincent, and Jean Le Dem, “Labor Market Representation in Quantitative Macroeconomic Models for Developing Countries: An Application to Cóte d’Ivoire,” IMF Working Paper 95/87 (Washington: International Monetary Fund, August 1995).
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Bond, Marian E., “Agricultural Responses to Prices in Sub-Saharan African Countries,” Staff Papers, International Monetary Fund, Vol. 30 (December 1983), pp. 703–26.
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Grootaert, Christiaan, “The Position of Migrants in the Urban Informal Labour Market in Côte d’Ivoire,” Journal of African Economies, Vol. 1 (November 1992), pp. 416–45.
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)| false Haque, Nadeem U., Kajal Lahiri, and Peter J. Montiel, “A Macroeconometric Model for Developing Countries,” in Macroeconomic Models for Adjustment in Developing Countries, ed. by ( Moshin S. Khan, Peter J. Montiel, and Nadeem U. Haque Washington: International Monetary Fund, 1991), pp. 234– 56.
Haque, Nadeem U., and Peter Montiel, “Dynamic Responses to Policy and Exogenous Shocks in an Empirical Developing Country Model with Rational Expectations,” in Macroeconomic Models for Adjustment in Developing Countries, ed. by Moshin S. Khan, Peter J. Montiel, and Nadeem U. Haque (Washington: International Monetary Fund, 1991), pp. 257–90.
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)| false Haque, Nadeem U., and Peter Montiel, “Dynamic Responses to Policy and Exogenous Shocks in an Empirical Developing Country Model with Rational Expectations,” in Macroeconomic Models for Adjustment in Developing Countries, ed. by ( Moshin S. Khan, Peter J. Montiel, and Nadeem U. Haque Washington: International Monetary Fund, 1991), pp. 257– 90.
Harris, John R., and Michael P. Todaro, “Migration, Unemployment and Development: A Two-Sector Analysis,” American Economic Review, Vol. 60 March 1970), pp. 126–42.
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Kouwenaar, Arend, “Price and Volume Effects of a Devaluation in Developing Countries,” IMF Working Paper 91/130 (Washington: International Monetary Fund, December 1991).
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Velenchik, Anne, “Cash Seeking Behavior and Migration: A Place-to-Place Migration Function for Côte d’Ivoire,” Journal of African Economies, Vol. 2 (December 1994), pp. 329–47.
Vincent Bodart is an Economist in the European I Department. He received his doctorate in economics from the University of Namur, Belgium. Jean Le Dem is a Senior Economist in the Policy Development Review Department. He is a graduate of ENSAE, Paris. The authors would like to thank Pierre-Richard Agénor, Pierre Dhonte, and Nadeem Haque for their comments on earlier versions of the paper, and Janet Bungay for editorial assistance.
The role of the rural–urban wage differential is demonstrated in reverse by the low migration rate—as reflected by similar growth rates of the urban and rural populations—during the 1970s when rural per capita income grew rapidly, thanks to improving terms of trade.
In what follows, we will identify each sector with the following index: agricultural food crops (1), agricultural exports (2), urban modern sector (3), urban informal sector (4), and the public sector (g). For simplicity, the following abbreviations are used: agricultural food crop sector (AF), agricultural export sector (AE), urban modern sector (UM\ and urban informal sector (UF).
The following notational conventions are used. All variables are expressed in absolute values except when noted. A real variable corresponds to a variable measured at base–year prices. For convenience, time subscripts arc omitted. Unless otherwise indicated, flow variables are defined for the current period, while stock variables are measured at the beginning of the current period.
A more general specification of agricultural production would include land and capital as additional arguments of the production function. The simplification done here relies on the assumption that land is essentially fixed and the stock of capital is minimal and the possibilities for its extension are rather limited. Note, however, that the impact on production of changes in and capital can be viewed as implicit in the trend term.
The Harris–Todaro (1970) approach does not distinguish between the formal and informal components of the urban sector. For an analysis of rural–urban migrations that introduces this distinction, see Fields (1975) and Cole and Sanders (1985).
The specification of the migration function draws on a long tradition of economic studies that explain migrations in terms of sectoral differences in expected wages. For details on that approach, see the seminal work of Harris and Todaro (1970) and its several extensions. It must be noted. however, that several recent studies have investigated alternative approaches. For example, Velenchik (1994) examines the role of cash–seeking behavior in the migration process and provides evidence that migration responds to the composition of rural income, and not just its level.
This assumption is rather simplistic and is certainly open to criticism. For example, one can argue that the highly educated workers released from the urban formal sector will accept temporary unemployment rather than take jobs in the informal sector. Evidence supporting this argument is provided by Grootaert (1992). However, it is likely that this unemployment is marginal.
A more extensive description of the structural model is provided in Bodart and Le Dem (1995), and a full listing of the model equations is available from the authors upon request. Key additional identities and the complete list of variables are provided in the Appendix.
The long-run elasticity of output to relative prices is derived from equation (4).
Empirical studies investigating the determinants of migration flows use logit models that relate the probability of migrating to several factors, including the average per capita income in the origin and destination areas. These studies use census data and approximate the probability of migrating by the ratio of the number of people born in the origin area and residing in the destination area to the total number of people born in the origin area. A recent study on Côte d’lvoire is Velenchik (1994). Under certain specific conditions, our estimate of the sensitivity of migration to relative wages can be reconciled with the results of this study.
This baseline scenario is largely fictional, although based on realistic trends of the exogenous variables.
In addition, manufactured export prices UPX3 have been increased by 5 percent to reflect the high content of Ivoirien manufacturing exports in processed agricultural goods (chocolate powder, processed wood, cotton textiles, canned fruits), whose international prices should reflect in part the assumed improvement in the corresponding raw material world prices.