Foreign Capital Inflow, Skilled-Unskilled Wage Gap, and Welfare in the Presence of the Informal Sector
AbstractThis paper attempts to analyse the impact of trade liberalisation on the skilled- unskilled wage gap and the level of welfare of developing countries, which are generally characterised by large “informal” labour markets. A neo-classical full-employment four-sector model has been developed, where the informal sector produces either a final product or an intermediate product on subcontracting basis. Evidence shows that in either case, trade liberalisation, in the form of an increase in foreign capital inflow, widens the skilled-unskilled wage gap of the economy under some reasonable conditions. It also shows that as a result of an increase in the foreign capital inflow, the level of welfare of the economy increases, when the informal sector produces
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Bibliographic InfoArticle provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.
Volume (Year): 43 (2004)
Issue (Month): 2 ()
Capital Inflow; Informal Sector;
Find related papers by JEL classification:
- F10 - International Economics - - Trade - - - General
- F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
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