Munich Personal RePEc Archive

Endogenous skill formation, foreign capital and education subsidy in a dual economy

Chaudhuri, Sarbajit and Bandopadhyay, Titas Kumar (2012): Endogenous skill formation, foreign capital and education subsidy in a dual economy.

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Abstract

The present paper develops a three sector Harris-Todaro (1970) type general equilibrium model of unemployment by incorporating endogenous skill formation. Two types of labour are considered: skilled labour and un-skilled labour. We examine the effects of the inflows of foreign capital on the level of unskilled unemployment and skilled-unskilled wage inequality. We find that an inflow of foreign capital raises the skilled- unskilled wage gap and lowers the level of unemployment of the unskilled labour.

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