Job-search and foreign capital inflow - a three sector general equilibrium analysis
AbstractThe 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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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 38921.
Date of creation: 21 May 2012
Date of revision:
Job search; foreign capital; unemployment; ex-post labour; ex-ante labour; general equilibrium;
Find related papers by JEL classification:
- J10 - Labor and Demographic Economics - - Demographic Economics - - - General
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
- J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
- I28 - Health, Education, and Welfare - - Education - - - Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-29 (All new papers)
- NEP-IUE-2012-05-29 (Informal & Underground Economics)
- NEP-LAB-2012-05-29 (Labour Economics)
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