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Trade liberalization, Skilled Intermediate input and Wage Distribution

Mandal, Biswajit and Roy, Sangita (2017): Trade liberalization, Skilled Intermediate input and Wage Distribution.

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Abstract

This paper proposes a simple theoretical model of a small open economy comprising of four sectors including formal and informal ones. One sector produces skilled intermediate input for the importable production. Though other two sectors use labour and capital (land), labour is segregated as skilled or unskilled. Following traditional specification we also assumed that the skilled labours are employed in the formal sector and unskilled labours are employed in the informal sector. One of the distinguishing features of the present paper is the use of skilled intermediate input in import competing sector. So, in a sense import competing sector uses both skilled and unskilled labour. In such backdrop we tried to study the impact of trade liberalization on absolute and relative wage(s). It has been found that irrespective of factor intensity ranking both types of workers lose owing to tariff cut whereas under reasonable condition wage disparity between skilled and unskilled workers is reduced. These results seem to be quite sensible though the structure is slightly different from the conventional set up.

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