A Study on Intersectoral Migration of Agricultural Labor and Inflation in the Developing Countries

Type:

SCID Working Paper 456

Author(s):

Published:

08/2/12

Abstract:

This paper investigates a chain through which migration of labor between agricultural and nonagricultural sectors will have effects on inflation measured by changes in general level of prices or in Consumer Price Index (CPI). It first elaborates that equilibrium migration of labor in a period, characteristic of stability of the relative price between products of both the sectors in the same period, may exist along with capital accumulation. A hypothesis that there is a nonagricultural bias of investments in contemporary developing countries is put forward to explain a source of disequilibrium of labor migration with relative price fluctuations. Then the mechanisms of transmitting fluctuations in relative price to the price level and to CPI are described. It demonstrates that relative price matters with economy-wide inflations if monetary expansions have to be implemented to alleviate slowdowns of the economy resulting from increases in relative price. An empirical link between labor migration and food relative price within CPI will be found through tests with data from China.

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