Economic Liberalization and urban unemployment in the presence of informal sector

Ghosh, Sujata and Mandal, Biswajit and Gupta, Kausik (2017): Economic Liberalization and urban unemployment in the presence of informal sector.

Abstract

In this paper, we construct a three sector general equilibrium model of a small open economy with informal sector. The paper examines the impact of less protectionist policy on the output levels, factor prices, and the level of urban employment. Here, it has been shown that the urban unemployment rate has been lowered with the contraction of import competing manufacturing sector consequent upon a reduction in tariff. The informal intermediate sector has contracted as well. It is further shown here that there is a possibility of expansion of exportable agricultural sector with increased wage rate. The paper is then extended to introduce foreign capital inflow and examine on the output effects and the level of unemployment. Interestingly, in the extended model urban unemployment is aggravated due to an inflow of foreign capital.

• Item Type: MPRA Paper
• Language: English
• Keywords: Informal Sector, Tariff Liberalization, Foreign Capital Inflow, General Equilibrium,
• Subjects: D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D58 - Computable and Other Applied General Equilibrium Models; D - Microeconomics > D6 - Welfare Economics > D60 - General; F - International Economics > F1 - Trade > F11 - Neoclassical Models of Trade; F - International Economics > F1 - Trade > F13 - Trade Policy ; International Trade Organizations

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