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Foreign Capital Inflow, Skilled-Unskilled Wage Gap, and Welfare in the Presence of the Informal Sector

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Author Info
Kausik Gupta (University of Burdwan, West Bengal, India.)
Tania Basu (University of Burdwan, West Bengal, India.)
Abstract

This 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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Publisher Info
Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

Volume (Year): 43 (2004)
Issue (Month): 2 ()
Pages: 125-147
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Handle: RePEc:pid:journl:v:43:y:2004:i:2:p:125-147

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Related research
Keywords: 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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  1. Chaudhuri, Sarbajit & Mukherjee, Ujjaini, 2002. "Removal of protectionism, foreign investment and welfare in a model of informal sector," Japan and the World Economy, Elsevier, vol. 14(1), pages 101-116, January. [Downloadable!] (restricted)
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  2. Gupta, Manash Ranjan, 1997. "Informal sector and informal capital market in a small open less-developed economy," Journal of Development Economics, Elsevier, vol. 52(2), pages 409-428, April. [Downloadable!] (restricted)
  3. Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Papers 95-14, California Davis - Institute of Governmental Affairs.
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  4. Manjusri Bandyopadhyay & Manas Gupta, 1995. "Development policies in the presence of an informal sector: A note," Journal of Economics, Springer, vol. 61(3), pages 301-315, October. [Downloadable!] (restricted)
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