IDEAS home Printed from
   My bibliography  Save this article

Trade Reform and Informal Wages


  • Sugata Marjit
  • Saibal Kar
  • Hamid Beladi


When trade reform contracts protected formal sectors in developing countries and the formal workers move to the informal sector for employment, does that reduce informal wages? Using a 2 × 2 Heckscher-Ohlin-Samuelson (HOS) structure with formal-informal production organization for the same commodity, we show that a tariff cut in the import-competing sector increases both informal wage and employment under very reasonable assumptions. An increase in the price of the export commodity will also increase informal wages, although aggregate informal employment unambiguously falls even if the informal export sector is labor intensive. Furthermore, the formal-informal segmentation of each sector opens up an interesting, hitherto unexplored, possibility that the informal export sector may contract despite a price increase in this sector. Change in the overall size of the export sector is also ambiguous and conditional on the relative strengths of changes in these two segments. Copyright © 2007 The Authors; Journal compilation © 2007 Blackwell Publishing Ltd.

Suggested Citation

  • Sugata Marjit & Saibal Kar & Hamid Beladi, 2007. "Trade Reform and Informal Wages," Review of Development Economics, Wiley Blackwell, vol. 11(2), pages 313-320, May.
  • Handle: RePEc:bla:rdevec:v:11:y:2007:i:2:p:313-320

    Download full text from publisher

    File URL:
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Ishikawa, Jota, 2000. "Foreign Monopoly and Trade Policy under Segmented and Integrated Markets," Economic Review, Hitotsubashi University, vol. 51(4), pages 321-336, January.
    2. Markusen James R. & Morey Edward R. & Olewiler Nancy D., 1993. "Environmental Policy when Market Structure and Plant Locations Are Endogenous," Journal of Environmental Economics and Management, Elsevier, vol. 24(1), pages 69-86, January.
    3. Norman J. Ireland, 1984. "Dual Equilibria and Discontinuous Response in Monopolistic Competition with Two Classes of Consumers," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 377-384, Autumn.
    4. Formby, John P & Layson, Stephen & Smith, W James, 1982. "The Law of Demand, Positive Sloping Marginal Revenue, and Multiple Profit Equilibria," Economic Inquiry, Western Economic Association International, vol. 20(2), pages 303-311, April.
    5. Nahata, Babu & Ostaszewski, Krzysztof & Sahoo, P K, 1990. "Direction of Price Changes in Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 80(5), pages 1254-1258, December.
    6. Markusen, James R. & Morey, Edward R. & Olewiler, Nancy, 1995. "Competition in regional environmental policies when plant locations are endogenous," Journal of Public Economics, Elsevier, vol. 56(1), pages 55-77, January.
    7. Michael Rauscher, 1995. "Environmental regulation and the location of polluting industries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(2), pages 229-244, August.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Sugata Marjit & Saibal Kar, 2012. "Firm Heterogeneity, Informal Wage and Good Governance," Review of Development Economics, Wiley Blackwell, vol. 16(4), pages 527-539, November.
    2. Pham, Thi Hong Hanh, 2017. "Impacts of globalization on the informal sector: Empirical evidence from developing countries," Economic Modelling, Elsevier, vol. 62(C), pages 207-218.
    3. Sugata Marjit & Saibal Kar & Dibyendu Sundar Maiti, 2009. "Labor Market Reform And Poverty – The Role Of Informal Sector," World Scientific Book Chapters,in: New And Enduring Themes In Development Economics, chapter 11, pages 229-240 World Scientific Publishing Co. Pte. Ltd..
    4. PHAM Thi Hong Hanh, 2011. "Globalisation versus Informality: Evidence from developing countries," FIW Working Paper series 074, FIW.
    5. Mukherjee, Soumyatanu & Zafar, Sameen, 2014. "Technological progress with segmented factor markets and welfare implications for the urban poor," MPRA Paper 55297, University Library of Munich, Germany.
    6. Arvin-Rad, Hassan & Basu, Arnab K. & Willumsen, Maria, 2010. "Economic reform, informal-formal sector linkages and intervention in the informal sector in developing countries: A paradox," International Review of Economics & Finance, Elsevier, vol. 19(4), pages 662-670, October.
    7. Sirin Saracoglu, 2015. "The linkages between formal and informal sectors: A segmented labor markets analysis," EcoMod2015 8603, EcoMod.
    8. Traoré, Jean Abel & Ouedraogo, Idrissa Mohamed, 2015. "Public policies promoting the informal economy: effects on incomes, employment and growth in Burkina Faso," MPRA Paper 74760, University Library of Munich, Germany.
    9. Saibal Kar & Devleena Majumdar, 2016. "MFN Tariff Rates and Carbon Emission: Evidence from Lower-Middle-Income Countries," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 64(3), pages 493-510, July.
    10. Mukherjee, Soumyatanu, 2016. "Technology, trade and ‘urban poor’ in a general equilibrium model with segmented domestic factor markets," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 400-416.
    11. Roychowdhury, Punarjit & Dutta, Mousumi, 2011. "Regulation, governance and informality: an empirical analysis of selected countries," MPRA Paper 33775, University Library of Munich, Germany.
    12. Marjit, Sugata & Kar, Saibal, 2007. "Labor productivity growth, informal wage and capital mobility: A general equilibrium analysis," MPRA Paper 23912, University Library of Munich, Germany, revised 2008.
    13. Marjit, Sugata & Mandal, Biswajit, 2010. "Extortion and Informal Sector in a Small Open Economy," MPRA Paper 25044, University Library of Munich, Germany.
    14. Kar, Saibal & Marjit, Sugata, 2009. "Urban informal sector and poverty," International Review of Economics & Finance, Elsevier, vol. 18(4), pages 631-642, October.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:rdevec:v:11:y:2007:i:2:p:313-320. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.