The impacts of capital market distortion on wage inequality, urban unemployment, and welfare in developing countries

Jiancai Pi and Xuyang Chen

International Review of Economics & Finance, 2016, vol. 42, issue C, 103-115

Abstract: This paper employs the general equilibrium approach to investigate how the change of rural–urban capital market distortion influences skilled–unskilled wage inequality and urban unemployment in developing countries. Our basic model shows that a decrease in capital market distortion will reduce the wage inequality and the urban unemployment rate. Our extended model confirms the main results of our basic model. Furthermore, this paper also analyzes the effect of capital market distortion on social welfare, and finds that an alleviation of capital market distortion will generate a welfare gain in both basic and extended models.

Keywords: Capital market distortion; Wage inequality; Urban unemployment; Social welfare; General equilibrium approach (search for similar items in EconPapers)
JEL-codes: J31 J64 P23 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:42:y:2016:i:c:p:103-115

DOI: 10.1016/j.iref.2015.10.045

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