Market Distortions and Welfare in Developing Countries: A Search for Critical Levels of Reforms

Dibyendu Banerjee (), Purbasha Bhattacharyya () and Susmita Chatterjee ()
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Dibyendu Banerjee: Serampore College, University of Calcutta
Purbasha Bhattacharyya: Basanti Devi College, University of Calcutta
Susmita Chatterjee: Maharaja Manindra Chandra College, University of Calcutta

The Indian Journal of Labour Economics, 2024, vol. 67, issue 2, No 11, 522 pages

Abstract: Abstract This work theoretically finds out the welfare implications of different reformatory policies in a small open developing economy using a 2 × 2 full-employment general equilibrium model with distorted factor and product markets. We have found that there exists a trade-off between labour market and credit market reforms, and that there might exist certain critical levels beyond which the implementation of the policies might produce perverse effects on social welfare. Even though our results are interesting and have important policy bearings, their applications in reality in a large democratic country like India, may not be practicable because of political economy reason.

Keywords: Market distortion; Reformatory policy; Developing economy; Pareto optimal solution; Critical level of reform; Political economy consideration; General equilibrium model (search for similar items in EconPapers)
JEL-codes: D59 D60 J42 J52 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s41027-024-00496-3

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