Development Policy in a Multi-provincial Economy (Invited Lecture)

In this paper, we present a stylized model for the study of development policy in a less developed country with several (rural) provinces, each with its own local economy, and a federal (urban) sector with a relatively more developed economic structure. A distinguishing characteristic of the model is that labour from each province is easily distinguishable from that of any other on the basis of (say) language, race, ethnicity, caste, gender or simply, accent. Each province has economic ties to the federal sector and to the world economy but no direct ties to any other province. Inter-provincial economic relations are a consequence of the relation which each province bears to the federal sector and to the world economy. The object of the study is to bring out how closely interwoven the economy is despite the assumption of no direct economic relations between any two provinces. In particular, we would like to study the effect of a variety of economic policies on the economy of one province when such policies are primarily directed at the economy of another province. Our model illustrates, in a rather dramatic way, how the fortunes or misfortunes of a particular province impinge on those of the others and how attempts by policy-makers to alleviate or exploit the economic successes or failures of one province have economic consequences for the economies of all the others.