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Economic Liberalization and urban unemployment in the presence of informal sector

Sujata Ghosh, Biswajit Mandal and Kausik Gupta

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, we construct a three sector general equilibrium model of a small open economy with informal sector. The paper examines the impact of less protectionist policy on the output levels, factor prices, and the level of urban employment. Here, it has been shown that the urban unemployment rate has been lowered with the contraction of import competing manufacturing sector consequent upon a reduction in tariff. The informal intermediate sector has contracted as well. It is further shown here that there is a possibility of expansion of exportable agricultural sector with increased wage rate. The paper is then extended to introduce foreign capital inflow and examine on the output effects and the level of unemployment. Interestingly, in the extended model urban unemployment is aggravated due to an inflow of foreign capital.

Keywords: Informal Sector; Tariff Liberalization; Foreign Capital Inflow; General Equilibrium (search for similar items in EconPapers)
JEL-codes: D58 D60 F11 F13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-iue
Date: 2017
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