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Foreign Capital, National Welfare and Unemployment in a Fair Wage Model

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  • Chaudhuri, Sarbajit
  • Banerjee, Dibyendu

Abstract

The paper develops a three-sector general equilibrium model that can explain simultaneous existence of unemployment of both skilled and unskilled labour. The unemployment of unskilled labour is explicated in terms of rural-urban migration mechanism while that of skilled labour is shown using the ‘fair wage hypothesis’. The paper finds that foreign direct investment (FDI) in the primary export sector improve both national welfare and urban unemployment problem of unskilled labour while the consequences of foreign capital flows into the import-competing sector and high-skill export sector are ambiguous. The paper justifies the desirability of FDI flow in the primary export sector from the perspective of both unemployment and social welfare.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18005.

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Date of creation: 30 Aug 2009
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Handle: RePEc:pra:mprapa:18005

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Keywords: Fair wage hypothesis; skilled labour; unskilled labour; national welfare; unemployment.;

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References

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  1. Chaudhuri, Sarbajit & Yabuuchi, Shigemi, 2007. "Foreign Capital and Skilled-unskilled Wage Inequality in a Developing Economy with Non-traded Goods," MPRA Paper 2645, University Library of Munich, Germany.
  2. Chandra, Vandana & Khan, M Ali, 1993. "Foreign Investment in the Presence of an Informal Sector," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 60(237), pages 79-103, February.
  3. Hamid Beladi & Sugata Marjit, 1992. "Foreign Capital and Protectionism," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 25(1), pages 233-38, February.
  4. Khan, M. Ali, 1982. "Tariffs, foreign capital and immiserizing growth with urban unemployment and specific factors of production," Journal of Development Economics, Elsevier, Elsevier, vol. 10(2), pages 245-256, April.
  5. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(2), pages 255-83, May.
  6. Brecher, Richard A. & Diaz Alejandro, Carlos F., 1977. "Tariffs, foreign capital and immiserizing growth," Journal of International Economics, Elsevier, Elsevier, vol. 7(4), pages 317-322, November.
  7. Pieter Serneels, 2007. "The Nature of Unemployment among Young Men in Urban Ethiopia," Review of Development Economics, Wiley Blackwell, Wiley Blackwell, vol. 11(1), pages 170-186, 02.
  8. Hamid Beladi & Avik Chakrabarti & Sugata Marjit, 2010. "Skilled-Unskilled Wage Inequality And Urban Unemployment," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 48(4), pages 997-1007, October.
  9. Beladi, Hamid & Marjit, Sugata, 1992. "Foreign capital, unemployment and national welfare," Japan and the World Economy, Elsevier, Elsevier, vol. 4(4), pages 311-317, December.
  10. Sarbajit Chaudhuri & Shigemi Yabuuchi & Ujjaini Mukhopadhyay, 2006. "Inflow Of Foreign Capital And Trade Liberalization In A Model With An Informal Sector And Urban Unemployment," Pacific Economic Review, Wiley Blackwell, Wiley Blackwell, vol. 11(1), pages 87-103, 02.
  11. Grinols, Earl L, 1991. "Unemployment and Foreign Capital: The Relative Opportunity Costs of Domestic Labour and Welfare," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 58(229), pages 107-21, February.
  12. Sarbajit Chaudhuri, 2005. "Labour Market Distortion, Technology Transfer And Gainful Effects Of Foreign Capital," Manchester School, University of Manchester, University of Manchester, vol. 73(2), pages 214-227, 03.
  13. Agell, Jonas & Lundborg, Per, 1995. "Fair Wages in the Open Economy," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 62(247), pages 335-51, August.
  14. Chaudhuri, Sarbajit, 2007. "Foreign capital, welfare and urban unemployment in the presence of agricultural dualism," Japan and the World Economy, Elsevier, Elsevier, vol. 19(2), pages 149-165, March.
  15. Marjit, Sugata & Beladi, Hamid, 1996. "Protection and the gainful effects of foreign capital," Economics Letters, Elsevier, Elsevier, vol. 53(3), pages 311-316, December.
  16. Agell, Jonas & Lundborg, Per, 1992. "Fair wages, involuntary unemployment and tax policies in the simple general equilibrium model," Journal of Public Economics, Elsevier, Elsevier, vol. 47(3), pages 299-320, April.
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