Imperfect Capital Mobility: A General Approach to the Two-Sector Harris Todaro Model

This paper investigates the analytical implications of partially mobile capital among sectors arising in the context of the two-sector general-equilibrium Harris-Todaro (HT) model. It is shown that under partially mobile capital, unlike the case of totally mobile or immobile capital, labor growth (capital accumulation) may destabilize sectoral capital movement and lower the welfare of a small country if the agricultural rental rate is lower (higher) than the manufacturing rental rate. While the price-output response is always normal in a stable system, the Rybczynski type of factor endowment-output response requires more stringent conditions (vis-a-vis perfectly mobile or immobile capital case).