Dynamic Stability, Wage Subsidies and the Generalized Harris-Todaro Model

In a recent contribution, Neary has shown that paradoxes and instability correspond in the two-sector model with proportional differentials in factor returns, leading one to downgrade the importance of these paradoxes. In this paper, we examine the extent to which this result extends to the Generalized Harris-Todaro Model of which the proportional differential setting is a simple special case. In developing the argument, we generate a variety of comparative-statics results of consequence for development theory. The implications of these results for the conduct of commercial policy are also brought out.