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

In this paper, we present a stylized model for the study ofdevelopment policy in a less developed country with several (rural)provinces, each with its own local economy, and a federal (urban) sectorwith a relatively more developed economic structure. A distinguishingcharacteristic of the model is that labour from each province is easilydistinguishable from that of any other on the basis of (say) language,race, ethnicity, caste, gender or simply, accent. Each province haseconomic ties to the federal sector and to the world economy but nodirect ties to any other province. Inter-provincial economic relationsare a consequence of the relation which each province bears to thefederal sector and to the world economy. The object of the study is tobring out how closely interwoven the economy is despite the assumptionof no direct economic relations between any two provinces. Inparticular, we would like to study the effect of a variety of economicpolicies on the economy of one province when such policies are primarilydirected at the economy of another province. Our model illustrates, in arather dramatic way, how the fortunes or misfortunes of a particularprovince impinge on those of the others and how attempts bypolicy-makers to alleviate or exploit the economic successes or failuresof one province have economic consequences for the economies of all theothers.