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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.

Suggested Citation

  • Chaudhuri, Sarbajit & Bandopadhyay, Titas Kumar, 2012. "Job-search and foreign capital inflow - a three sector general equilibrium analysis," MPRA Paper 38921, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:38921
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    References listed on IDEAS

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    1. 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.
    2. JuanJ. Dolado & Marcel Jansen & JuanF. Jimeno, 2009. "On-the-Job Search in a Matching Model with Heterogeneous Jobs and Workers," Economic Journal, Royal Economic Society, vol. 119(534), pages 200-228, January.
    3. 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.
    4. J. J. McCall, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, Oxford University Press, vol. 84(1), pages 113-126.
    5. 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.
    6. 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.
    7. Fatih Macit, 2010. "Labor Market Institutions and Wage and Inflation Dynamics," Economic Analysis and Policy, Elsevier, vol. 40(3), pages 393-410, December.
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    9. 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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    11. 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.
    12. 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.
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    16. 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.
    17. Chaudhuri, Sarbajit & Mukhopadhyay, Ujjaini, 2009. "Revisiting the Informal Sector: A General Equilibrium Approach," MPRA Paper 52135, University Library of Munich, Germany.
    18. 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, February.
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    More about this item

    Keywords

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

    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

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