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FOREIGN CAPITAL, WELFARE AND URBAN UNEMPLOYMENT IN THE PRESENCE OF AGRICULTURAL DUALISM

Sarbajit Chaudhuri ()

International Trade from EconWPA

Abstract: In a two sector mobile capital Harris-Todaro model, such as Corden and Findlay (1975), an inflow of foreign capital in the presence of protectionist policy is welfare deteriorating as well as unemployment accentuating. But, the developing countries have chosen liberalized investment and trade policies as their development strategies and have been able to attract a considerable amount of foreign capital during the last two decades. A relevant question is why these countries are yearning for foreign capital given its detrimental effects as predicted by the conventional theoretical literature on trade and development. This paper makes an attempt to address the above issue in terms of a three sector Harris-Todaro model with agricultural dualism and a non- traded final commodity. In the given setup, an inflow of foreign capital is likely to improve welfare and does not necessarily worsen the problem of unemployment. The paper may also be useful to explain as to why many of the developing economies have experienced ‘jobless growth’ in the liberalized regime.

Keywords: Foreign capital; rural-urban migration; welfare; urban unemployment; general equilibrium; import tariff; jobless growth (search for similar items in EconPapers)
JEL-codes: F2 F21 O17 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr
Date: 2005-10-20
Note: Type of Document - pdf; pages: 23
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Related works:
Journal Article: Foreign capital, welfare and urban unemployment in the presence of agricultural dualism (2007) Downloads
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