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Economic Liberalization and Informal Wage in a Small Open Economy: Does Capital Mobility count?

Sarbajit Chaudhuri () and Dibyendu Banerjee

MPRA Paper from University Library of Munich, Germany

Abstract: Empirical evidence suggests that the size of the informal sector in the developing countries has increased considerably during the liberalized economic regime. The present paper purports to analyze the consequences of economic reforms on the wellbeing of the informal sector workforce using a three-sector general equilibrium model with two informal sectors. The theoretical analysis finds that different liberalized policies produce diverse effects on the informal wage and that these results are independent of the nature of capital mobility between the informal and the formal sectors. It also shows that labour market reforms, contrary to the common wisdom, are likely to produce favourable effects on the informal wage.

Keywords: Informal sector; formal sector; informal wage; economic reforms; capital mobility; general equilibrium model (search for similar items in EconPapers)
JEL-codes: F16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab
Date: 2006-10-01
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