Economic Recession and Informal Sector Workers

The paper develops a three-sector specific factor model with Harris-Todaro type unemployment to examine the consequences of economic recession in the skilled sector on the informal sector workforce. It finds that while a decrease in the price of high-skill commodity raises both the informal (rural) sector wage and unemployment of unskilled labour, a drop in emigration of skilled labour produces exactly the opposite effects. The effects of these policies on the welfare of unskilled workers in terms of the welfare measure of Sen (1974) have also been studied. The paper recommends a protectionist policy to the unskilled labour-intensive sector for protecting the interest of the vulnerable section of the working population.Skilled labour; unskilled labour; economic recession; informal wage; urban unemployment

INCIDENCE OF CHILD LABOUR, FREE EDUCATION POLICY AND ECONOMIC LIBERALIZATION IN A DEVELOPING ECONOMY

The paper analyzes the implications of a subsidy policy on education and different liberalized trade and investment policies on the incidence of child labour in a developing economy in terms of a three-sector general equilibrium model with informal sector and child labour. The supply function of child labour is endogenously determined. The paper shows that different policies, if undertaken concurrently, may produce mutually contradictory effects, thereby producing little or no impact on the incidence of child labour. The paper provides a theoretical answer as to why the incidence of child labour has not significantly declined in the developing economies in spite of economic development and globalization.Child labour, general equilibrium, informal sector, education subsidy, trade liberalization

Fair Wage Hypothesis, Foreign Capital Inflow and Skilled-unskilled Wage Inequality in the Presence of Agricultural Dualism

The paper develops a four-sector general equilibrium model where the fair wage hypothesis is valid and there is agricultural dualism for analyzing the consequence of an inflow of foreign capital on the skilled-unskilled wage inequality and the unemployment of skilled labour in a developing economy. The unskilled workers are fully employed but there is imperfection in the market for unskilled labour. On the contrary, the skilled wage is set by the firms by minimizing the unit cost of skilled labour and their efficiency depends on the relative income distribution and the unemployment rate. The analysis finds that an inflow of foreign capital worsens the relative wage inequality but lowers the unemployment of skilled labour. It provides an alternative theoretical foundation to the empirical finding that inflows of foreign capital might have produced unfavourable effect on the wage inequality in the developing countries during the liberalized regime by increasing the relative demand for skilled labour.Fair wage hypothesis; agricultural dualism; skilled labour; unskilled labour; relative wage inequality; foreign capital; unemployment

INTERACTIONS BETWEEN TWO INFORMAL SECTOR LENDERS AND INTEREST RATE DETERMINATION IN THE INFORMAL CREDIT MARKET: A THEORETICAL ANALYSIS

The paper provides a theory of interest rates determination in the informal credit market in backward agriculture highlighting the interactions between two informal sector lenders (a professional moneylender and a trader-interlocker) and explains the prevalence of different interest rates in the rural credit market. The trader and the moneylender play a non-cooperative game in choosing the extent of interlinkage and the non-interlinked informal interest rate, respectively. In the interlinked credit-product contract, the trader offers the interlockees a product price equal to the open market price and his entire surplus comes from his activities in the credit market. These results are completely opposite to those found in the existing literature on interlinkage. A price subsidy policy reduces the extent of interlinkage chosen by the trader while a credit subsidy policy may raise it. Besides, the subsidy policies unequivocally raise the non- interlinked informal interest rate of the moneylender but may lower the welfare of the farmers and the agricultural productivity. In this context, an alternative credit policy of forging a vertical linkage between the formal and informal credit markets has been considered. It has been found that a credit subsidy policy under the new system is able to raise the agricultural productivity and improve the welfare of the farmers by ameliorating their borrowing terms in the credit market.Trader, Moneylender, Formal credit, Informal credit, Interlinkage, Interest rate, Nash equilibrium, Subsidy policy, Vertical linkage

INTERNATIONAL MIGRATION OF SKILLED LABOUR, WELFARE AND UNEMPLOYMENT OF UNSKILLED LABOUR: A NOTE

The present paper makes an attempt to examine theoretically the impact of emigration of skilled labour from developing countries on the level of welfare of the non-migrants and the level of urban unemployment of unskilled labour in a three sector Harris-Todaro model. The analysis suggests that in a reasonable production structure for a developing economy a brain drain of skilled labour raises urban unemployment of unskilled labour. The paper also shows that an emigration of skilled labour may raise the welfare of the non-migrants in a tariff-distorted economy if it imports the specialized manufacturing product or the labour-intensive good. However, if the economy imports the traditional manufacturing product, the welfare of the non-emigrating workers is likely to deteriorate.Emigration of skilled labour; unskilled labour; Harris-Todaro framework; welfare of the non-migrants; urban unemployment

Endogenous labour market imperfection and the HOS model: some counterintuitive trade-theoretic results

This paper introduces endogenous labour market imperfection in an otherwise Heckscher-Ohlin-Samuelson (HOS) model. It demonstrates that this framework satisfies the Stolper-Samuelson theorem and the magnification effect and that it is capable of producing certain trade-theoretic results which are contrary to the standard HOS and the Corden and Findlay (1975) results.Labour market imperfection, Heckscher-Ohlin-Samuelson model, Corden and Findlay model, foreign capital, trade liberalization, general equilibrium

Foreign Capital Inflow, Non-traded Intermediary, Urban Unemployment, and Welfare in a Small Open Economy: A Theoretical Analysis

The paper attempts to analyse the implications of foreign capital inflow in a small open economy with a non-traded intermediary on the welfare and urban unemployment in a three-sector Harris-Todaro (1970) framework. The standard immiserising result of a foreign capital inflow has been found to be valid when the non-traded intermediary is solely used in the protected import-competing sector. However, if the export sector too uses the intermediary, the economy may experience an improvement in its welfare and a reduction in the urban unemployment level.

Foreign Direct Investment, Child Labour and Unemployment of Unskilled Labour in a Dual Economy

Using a three-sector specific-factor Harris-Todaro type general equilibrium model the paper demonstrates how an inflow of foreign capital might produce favourable effect on the incidence of child labour in a small open dual economy. The welfare of the working families is likely to improve due to the policy even though the urban unemployment situation of unskilled labour may not get better.Child labour, general equilibrium, Harris-Todaro model, foreign capital, return to education, wage inequality

DIRECT FOREIGN INVESTMENT IN A SMALL OPEN ECONOMY AND GLOBAL TRADE LIBERALIZATION IN AGRICULTURE: A NOTE

In a production structure reasonable for a developing economy this note shows that there may arise a conflict between the worldwide liberalized trade policies in agriculture, which raise the price of the economy’s primary exportable commodity, and the inflow of foreign capital into the economy. However, if the economy strictly adheres to the different facets of the agricultural trade liberalization policies, e.g. the removal of the indirect farm subsidies, the paper argues that the possible conflict may be avoided. The paper provides a theoretical basis for the removal of the farm subsidies if the economy wants to develop its technologically more advanced sectors with an adequate supply of foreign capital.Liberalized trade policy in agriculture; foreign capital inflow; rate of return on foreign capital; fertilizer subsidy

Foreign Capital Inflow, Technology Transfer, and National Income

According to Jones and Marjit (1992), in a two-sector, full-employment model it is not possible to show that growth in the foreign capital employed in the export sector of a small open economy will lead to a fall in the welfare in the presence of a protected import-competing sector. In this short paper, we have shown that one may get the immiserising result even in this framework if the inflow of foreign capital into the export sector is accompanied by technology transfer, which leads to a fall in the labour-output ratio in this sector.