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Inflow of Educational Capital, Intermediation and Informal Sector

Mandal, Biswajit and Roy, Sangita (2018): Inflow of Educational Capital, Intermediation and Informal Sector.

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Abstract

Informal sector comprising of unrecorded, unregistered activities in developing economies of the world is a common feature at present scenario. Existence of such sectors in an economy clearly reflects the weakness of government to provide employment opportunities for all. Such informal activities are again facilitated through the extortionists who are bribed by the informal producers. Under such an economic structure the paper investigates into the effect of inflow of educational capital on endogenously determined factor prices and output of formal and informal sectors of an economy.Though there is no change in the factor earnings, an inflow of educational capital gives a boost to the output of skilled sector irrespective of any factor intensity assumption. Output of formal sector also expands depending on the factor intensity assumption but quite interestingly no change is seen in the output of informal sector. Inflow of educational capital leads to dampening of intermediation activities in an economy which is a positive result and this can help the policy makers to choose the right path of development.

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