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)

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: International Trade; Employment; Informal Wage; General Equilibrium.
• Subjects: D - Microeconomics > D5 - General Equilibrium and Disequilibrium; F - International Economics > F1 - Trade; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements

References

Agenor,P.R.1996).Thelabormarketandeconomicadjustment.IMFStaff Papers,32,261-335.

Agenor, P. and P. Montiel(1996). Development Macroeconomics. Princeton, NJ: Princeton University Press.

Agenor,P.R.(2005):Fiscal Adjustment and labor market dynamics in an open economy.Journal of Development Economics,76(1), 97-125.

Banerjee, A. V., & Newman, A. F. (1995). Migration, Integration, and Development. Columbia University, Department of Economics.

Banerjee, A. V., & Newman, A. F. (1998).Information, the dual economy, and development. The Review of Economic Studies, 65(4), 631-653.

Basu, K. (1997). AnalyticalDevelopment Economics. The LessDeveloped Economy Revisited.MIT Press.

Beladi,H.andMarjit,S.(1996).An Analysis of Rural-Urban Migration and Protection.Canadian Journal of Economics 29(4), 930-940.

Calvó-Armengol, A., & Jackson, M. O. (2007). Networks in labor markets: Wage and employment dynamics and inequality. Journal of economic theory,132(1), 27-46.

Chao,C.C.and Yu, E.S.H.(1995). International Capital Mobility, Urban Unemployment and Welfare. Southern Economic Journal, 62(2), 486-92.

Chao,C.C.andYu,E.S.H.(2001).Import Quotas, Tied Aid, Capital Accumulation and Welfare.Canadian Journal of Economics34(3), 661-76.

Chen, M. A. (2005). Rethinking the informal economy: Linkages with the formal economy and the formal regulatory environment. United Nations University, World Institute for Development Economics Research.

De Haan, A. (2000). Migrants, livelihoods and rights: the relevance of migration in development policies.

De Haas, H. (2010). Migration and development: a theoretical perspective1.International Migration Review, 44(1), 227-264.

Fields,G.S.(2005).A Welfare economic analysis of labor market policies in the Harris- Todaro model. Journal of Development Economics76(1), 127-146.

Fields, G. S. (2009). Segmented labor market models in developing countries.

Gang, I. N., &Gangopadhyay, S. (1987). Optimal policies in a dual economy with open unemployment and surplus labour. Oxford Economic Papers, 378-387.

Gerxhani, K. (2004). The informal sector in developed and less developed countries: a literature survey. Public choice, 120(3-4), 267-300.

Gupta,M.(1997).Informal sector and informal capital market in a small open less- developed economy. Journal of Development Economics 52(2), 409-428.

Gupta,M.(1993).Rural-urban migration, informal sector and development policies A Theoretical analysis. Journal of Development Economics41(1), 137-151.

Jones, R.W. (1965) – The Structure of Simple General Equilibrium Models. Journal of Political Economy, 73, pp.557-572.

Jones, R.W. (1971) – A three-factor model in theory, trade and history. In Bhagwati, J et al (Eds) Trade, Balance of Payments and Growth, North- Holland, Amsterdam, pp. 3-21.

Manski, C. F. (2000). Economic analysis of social interactions (No. w7580). National bureau of economic research.

Marjit, S (1991).Agro based Industry and Rural Urban Migration. The Case of an Urban Employment Subsidy.Journal of Development Economics 35(2), 393-398

Marjit,S.(2003).Economic reform and Informal wage. A General Equilibrium Analysis.Journal of Development Economics 72(1), 371-378.

Marjit, S. and H. Beladi. (2003).Possibility or Impossibility of Paradoxes in Small Economy Hariss-Todaro Models-A Unifying Analysis. Journal of Development Economics October, 379-385.

Marjit, S. (2005). Complementarity and International Trade – On Some Recent Developments in Structural General Equilibrium Trade Models. In S.Lahiri and P. Maiti (Eds.), Economic Theory in a Changing World.Delhi: Oxford University Press.

Marjit,S. and S.Kar(2011).The Outsiders: Economic Reform and Informal Labor in a Developing Economy, Oxford University Press.

Marjit,S., S.Kar and H.Beladi(2007).Trade Reform and Informal Wage. Review of Development Economics11(2), 113-120.

Meng, X. (2001).The informal sector and rural-urban migration-A Chinese case study. Asian Economic Journal, 15(1), 71-89.

Mishra, P. (2007). Emigration and wages in source countries: Evidence from Mexico. Journal of Development Economics, 82(1), 180-199.

Montgomery, J. D. (1991). Social networks and labor-market outcomes: Toward an economic analysis. The American economic review, 1408-1418.

Munshi, K. (2011). Strength in numbers: Networks as a solution to occupational traps. The Review of Economic Studies, 78(3), 1069-1101.

Neto, F., & Mullet, E. (1998). Decision-making as regards migration: Wage differential, job opportunity, and the network effect. ActaPsychologica, 98(1), 57-66.

Oladi, R. (2004). StrategicQuotas on Foreign Investment and Migration. Economic Theory 24(2), 289- 307.

Olesen, H. (2002). Migration, return, and development: An institutional perspective. International migration, 40(5), 125-150.

Pedersen, P. J., Pytlikova, M., & Smith, N. (2008). Selection and network effects—Migration flows into OECD countries 1990–2000. European Economic Review, 52(7), 1160-1186.

Sarkar,A.(1989).A Keynesian Model of North-South Trade. Journal of Development Economics 30 (1), 179-188.

Skeldon, R. (2008). International migration as a tool in development policy: a passing phase?. Population and development review, 34(1), 1-18.

Stark, O. (1991). The migration of labor (pp. 216-220). Oxford: Blackwell.

Stark, O., & Bloom, D. E. (1985).The new economics of labor migration. The American Economic Review, 173-178.