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Job-search and foreign capital inflow - a three sector general equilibrium analysis

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  • Chaudhuri, Sarbajit
  • Bandopadhyay, Titas Kumar

Abstract

The purpose of this paper is to extend the Fields’ (1989) multi sector job-search model in a three sector general equilibrium framework by introducing international trade and an input, capital. The three sectors are the rural sector, the urban informal sector and the urban formal sector. The rural sector and the urban informal sector use one type of mobile capital while the urban formal sector uses sector-specific another type of capital. We find that the effects of the inflow of foreign capital in the urban formal sector on unemployment and social welfare crucially hinge on the relative factor intensities of the rural and the urban informal sectors. We show that there is a possibility of a trade-off between the government’s twin objectives of improvement in social welfare and mitigation of the urban unemployment problem. These results are extremely crucial from the view of policymaking in an unemployment plagued, low-income developing economy.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 38921.

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Date of creation: 21 May 2012
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Handle: RePEc:pra:mprapa:38921

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Keywords: Job search; foreign capital; unemployment; ex-post labour; ex-ante labour; general equilibrium;

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  1. Bandopadhyay, Titas Kumar & Chaudhuri, Sarbajit, 2011. "Job-search and foreign capital inflow — A two sector general equilibrium analysis," Economic Modelling, Elsevier, vol. 28(6), pages 2494-2501.
  2. Yu Sheng & Xingpeng Xu, 2007. "Terms of Trade Shocks and Endogenous Search Unemployment: A Two-sector Model with Non-Traded goods," DEGIT Conference Papers c012_025, DEGIT, Dynamics, Economic Growth, and International Trade.
  3. Fields, Gary S., 1975. "Rural-urban migration, urban unemployment and underemployment, and job-search activity in LDCs," Journal of Development Economics, Elsevier, vol. 2(2), pages 165-187, June.
  4. Sarbajit Chaudhuri, 2003. "How and how far to liberalize a developing economy with informal sector and factor market distortions," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 12(4), pages 403-428.
  5. Juan J. Dolado & Marcel Jansen & Juan F. Jimeno, 2008. "On the job search in a matching model with heterogeneous jobs and workers," Banco de Espa�a Working Papers 0813, Banco de Espa�a.
  6. Chaudhuri, Sarbajit & Mukhopadhyay, Ujjaini, 2009. "Revisiting the Informal Sector: A General Equilibrium Approach," MPRA Paper 52135, University Library of Munich, Germany.
  7. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "The Distribution of Earnings in an Equilibrium Search Model with State-Dependent Offers and Counteroffers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 989-1016, November.
  8. Fatih Macit, 2010. "Labor Market Institutions and Wage and Inflation Dynamics," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 40(3), pages 393-410, December.
  9. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.
  10. James Mabli & Christopher Flinn, 2007. "On-the-Job Search, Minimum Wages, and Labor Market Outcomes in an Equilibrium Bargaining Framework," 2007 Meeting Papers 791, Society for Economic Dynamics.
  11. Manash Gupta, 1994. "Duty-free zone, unemployment, and welfare a note," Journal of Economics, Springer, vol. 59(2), pages 217-236, June.
  12. Khan, M. Ali, 1982. "Tariffs, foreign capital and immiserizing growth with urban unemployment and specific factors of production," Journal of Development Economics, Elsevier, vol. 10(2), pages 245-256, April.
  13. 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, vol. 11(1), pages 87-103, 02.
  14. McCall, John J, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, MIT Press, vol. 84(1), pages 113-26, February.
  15. Chandra, Vandana & Khan, M Ali, 1993. "Foreign Investment in the Presence of an Informal Sector," Economica, London School of Economics and Political Science, vol. 60(237), pages 79-103, February.
  16. Stark, Oded, 1982. "On modelling the informal sector," World Development, Elsevier, vol. 10(5), pages 413-416, May.
  17. Sarbajit Chaudhuri, 2005. "Labour Market Distortion, Technology Transfer And Gainful Effects Of Foreign Capital," Manchester School, University of Manchester, vol. 73(2), pages 214-227, 03.
  18. Fields, Gary S., 1989. "On-the-job search in a labor market model : Ex ante choices and ex post outcomes," Journal of Development Economics, Elsevier, vol. 30(1), pages 159-178, January.
  19. Robert M. Hussey, 2005. "On-the-Job Search and Wage Rigidity in a General Equilibrium Model," Computing in Economics and Finance 2005 393, Society for Computational Economics.
  20. Phillippe G. Leite & Terry McKinley & Rafael Guerreiro Osório, 2006. "The Post-Apartheid Evolution of Earnings Inequality in South Africa, 1995-2004," Working Papers 32, International Policy Centre for Inclusive Growth.
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