IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

How and how far to liberalize a developing economy with informal sector and factor market distortions

Listed author(s):
  • Sarbajit Chaudhuri

Whether a liberalizing developing economy should implement the entire WTO-prescribed package, and to what extent this is expedient, are two important questions, especially because the available empirical evidence suggests that developing countries have been facing substantial adjustment costs in their endeavour to implement trade and investment reform. The present paper makes a humble effort to provide answers to the above questions in terms of a three-sector general equilibrium model with informal sectors. Welfare implications of three liberalization policies: inflow of foreign capital, tariff reduction and labour market reform, have first been analysed in a full-employment framework. Later, the paper has been extended into a Harris - Todaro framework with an urban informal sector and capital market distortion. We have shown that welfare consequences of a tariff reform and/or a policy of deregulating the labour market crucially depend on the presence and magnitude of foreign capital in the economy. It is argued here that unless a proper choice among different prescribed policies, compatible with the internal institutional, technological and trade-related characteristics, is made, drastic implementation of reform measures may produce counterproductive results for the welfare of the relevant country.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

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

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 12 (2003)
Issue (Month): 4 ()
Pages: 403-428

in new window

Handle: RePEc:taf:jitecd:v:12:y:2003:i:4:p:403-428
DOI: 10.1080/0963819032000154829
Contact details of provider: Web page:

Order Information: Web:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

in new window

  1. Kaushik Basu, 2003. "Analytical Development Economics: The Less Developed Economy Revisited," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262523442, January.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:taf:jitecd:v:12:y:2003:i:4:p:403-428. 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: (Chris Longhurst)

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.