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International Trade, Migration and Unemployment – The Role of Informal Sector

Marjit, Sugata and Mandal, Biswajit (2015): International Trade, Migration and Unemployment – The Role of Informal Sector. Forthcoming in: Economics and Politics (13 November 2015)

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Abstract

This paper provides an elaborate general equilibrium framework by including informal economic activities in a model of trade, migration and unemployment. Existence of informal activities is critical in generating positive employment effects of liberal trade policies. Following a tariff cut informal wage increases and rate of unemployment goes down under reasonable conditions. Next we generalize the benchmark model to capture the phenomenon of sequential migration: from agriculture to urban informal sector, and then to urban formal sector. The paper also extends the benchmark model to include both informal intermediate and final good.

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