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Job-search and foreign capital inflow — A three-sector general equilibrium analysis

Sarbajit Chaudhuri () and Titas Bandopadhyay

Economic Modelling, 2013, vol. 35, issue C, 159-169

Abstract: The purpose of this paper is to extend the Fields' (1989) multi-sector job-search model in a three-sector general equilibrium framework by introducing international trade and capital as input. The three sectors are the rural sector, the urban informal sector and the urban formal sector. The rural sector and the urban informal sector use one type of mobile capital while the urban formal sector uses a sector-specific capital. We find that the effects of an inflow of foreign capital in the urban formal sector on unemployment and social welfare crucially hinge on the relative factor intensities of the rural sector and the urban informal sector. We show that there is a possibility of trade-off between the government's twin objectives of improvement in social welfare and mitigation of the urban unemployment problem. These results are extremely crucial from the view point of policymaking in an unemployment plagued, low-income developing economy.

Keywords: Job search; Foreign capital; Unemployment; Ex-post labor; Ex-ante labor; General equilibrium (search for similar items in EconPapers)
JEL-codes: F10 I28 J10 J13 (search for similar items in EconPapers)
Date: 2013
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