Economics Letters 2 (1979) 369-375 0 North-Holland Publishing Company A MULTISECTORAL MODEL OF A SMALL, OPEN ECONOMY WITH NON-SHIFTABLE CAPITAL AND IMPERFECT LABOR MOBILITY M. Ali KHAN * The Johns llopkins University, Baltimore, MD 21218, USA Received 9 May 1979 We report a model designed for the study of a less-developed economy whose labor force is composed of distinct ethnic or regional groups. The model is useful for the study of both posi- tive and normative questions and offers a synthesis of some recent work in development and trade theory. 1. Introduction In this letter, we report a model particularly well-suited for the study of a less- developed country, say Pakistan, too small to influence international prices for its products, and with a large, primarily rural, population which can be subdivided into several, say four, distinct, and easily identifiable, ethnic and regional groups. Mem- bers of these groups come to one predominant urban center, say Karachi, to find employment. There is a large pool of urban unemployed labor of each group and the urban wages are determined, not necessarily competitively, in the urban sector. The model has additional interest because it offers a generalization and a synthesis of some recent work in both the development and pure trade theory literature. Section 2 develops the basic equilibrium concept and reports, without proof, some results which provide an essential underpinning for subsequent comparative static investiga- tions. Section 3 looks at other work and section 4 asks, and answers, the question as to what set of shadow wages must a loan officer use for purposes of project evalua- tion. 2. The model and the equilibrium concept The model revolves around two basic ideas. The first is due to the seminal work of Harris-Todaro (1970) which replaces equality of actual nominal wages by * I started work on the ideas reported here while visiting the Department of Economics and the Math Ccntre at Northwestern University during the first half of 1978. I would like to thank both institutions for their hospitality. 369