• Selected
• Entire List

Abstract:
This paper develops a theoretical model like Gupta (1993) to show the simultaneous existence of the urban informal sector and open unemployment in the urban sector in a Harris-Todaro type of model of rural-urban migration. The paper shows that a wage or a price subsidy policy to the rural sector or a demand management policy like an export promotional scheme in the manufacturing sector reduces the urban unemployment level, and provides a theoretical basis for the introduction of export promotional measures like the formation of duty free Export Processing Zones (EPZs) to solve the urban unemployment problem. The policy conclusions of the present paper are also different from those found in Gupta (1993) model.

Urban Unemployment

Abstract:
This paper develops a theoretical model like Gupta (1993) to show the simultaneous existence of the urban informal sector and open unemployment in the urban sector in a Harris-Todaro type of model of rural-urban migration. The paper shows that a wage or a price subsidy policy to the rural sector or a demand management policy like an export promotional scheme in the manufacturing sector reduces the urban unemployment level, and provides a theoretical basis for the introduction of export promotional measures like the formation of duty free Export Processing Zones (EPZs) to solve the urban unemployment problem. The policy conclusions of the present paper are also different from those found in Gupta (1993) model.

Urban Unemployment

Abstract:
The present paper makes an attempt to examine theoretically the impact of emigration of skilled labour from developing countries on the level of welfare of the non-migrants and the level of urban unemployment of unskilled labour in a three sector Harris-Todaro model. The analysis suggests that in a reasonable production structure for a developing economy a brain drain of skilled labour raises urban unemployment of unskilled labour. The paper also shows that an emigration of skilled labour may raise the welfare of the non-migrants in a tariff-distorted economy if it imports the specialized manufacturing product or the labour-intensive good. However, if the economy imports the traditional manufacturing product, the welfare of the non-emigrating workers is likely to deteriorate.

Emigration of skilled labour, unskilled labour, Harris-Todaro framework, welfare of the non-migrants, urban unemployment

Abstract:
According to Jones and Marjit (1992), in a two-sector, full-employment model it is not possible to show that growth in the foreign capital employed in the export sector of a small open economy will lead to a fall in the welfare in the presence of a protected import-competing sector. In this short paper, we have shown that one may get the immiserizing result even in this framework if the inflow of foreign capital into the export sector is accompanied by a technology transfer, which leads to a fall in the labour-output ratio in this sector.

Foreign capital; Technology transfer; Export sector; National income

Abstract:
According to Jones and Marjit (1992), in a two-sector, full-employment model it is not possible to show that growth in the foreign capital employed in the export sector of a small open economy will lead to a fall in the welfare in the presence of a protected import-competing sector. In this short paper, we have shown that one may get the immiserizing result even in this framework if the inflow of foreign capital into the export sector is accompanied by a technology transfer, which leads to a fall in the labour-output ratio in this sector.

Foreign capital; Technology transfer; Export sector; National income

Abstract:
The present paper analyzes the phenomenon of corruption in the context of a Public Works Department (PWD) in a developing country city and examines its tenacity in the face of anticorruption measures. Different behaviour patterns of the supervisor (official) of the PWD have been considered. The interesting result to emerge is that corruption may show a high degree of robustness against marginal attacks and such measures may actually be counterproductive in the different cases considered in this paper.

Keywords: Corruption, investment project, supervisor, contractor, bribe, anticorruption measures

Corruption, investment project, supervisor, contractor, bribe, anticorruption measures

Abstract:
The paper analyzes the implications of a subsidy policy on education and different liberalized trade and investment policies on the incidence of child labour in a general equilibrium framework with endogenous determination of family size and enrollment of children to schools from each poor working family. It shows that these policies, if undertaken concurrently, may produce mutually contradictory effects, thereby producing little or no impact on the incidence of child labour. The paper provides a theoretical answer as to why the incidence of child labour has not significantly declined in the developing economies in spite of economic development and globalization.

Child labour, general equilibrium, family size, education subsidy, trade liberalization

Abstract:
The paper shows that in a reasonable production structure for a developing economy a brain drain of skilled labour may raise the welfare of the economy while an emigration of unskilled labour is welfare reducing. Also an emigration of skilled/unskilled labour lowers the urban unemployment of unskilled labour and widens the skilled-unskilled wage-gap. The paper provides an alternative explanation for the increasing wage inequality in many less developed countries in the regime of liberalized trade and investment in terms of higher international mobility of skilled and unskilled labour during this period using a Harris-Todaro (1970) framework where the central principle of the Stolper-Samuelson theorem holds.

Skilled labour, Unskilled labour, Emigration of labour, Welfare, Urban unemployment, Skilled-unskilled wage gap

Abstract:
The paper shows that in a reasonable production structure for a developing economy a brain drain of skilled labour may raise the welfare of the economy while an emigration of unskilled labour is welfare reducing. Also an emigration of skilled / unskilled labour lowers the urban unemployment of unskilled labour and widens the skilled-unskilled wage-gap. The paper provides an alternative explanation for the increasing wage inequality in many less developed countries in the regime of liberalized trade and investment in terms of higher international mobility of skilled and unskilled labour in this period using a simple variant of the H-O model where the central principle of the S-S theorem holds.

Skilled labour, Unskilled labour, Emigration of labour, Welfare, Urban unemployment, Skilled-unskilled wage gap

Abstract:
The paper shows that the policy of forging a vertical linkage between the formal and informal credit markets is distinctly superior to the existing credit policy of horizontally substituting the informal sector by the formal one. An inflow of subsidized formal credit to the informal lenders not only ensures better terms of borrowing to the small borrowers but also leads to higher agricultural productivity vis-a-vis the horizontal linkage case. Even if the informal sector lenders are allowed to collude, the informal interest rate is still lower in the vertical linkage case.

Formal credit, informal credit, horizontal linkage, vertical linkage, moneylender, collusion

Abstract:
Removal of tariff restrictions from the relatively unskilled labour intensive sectors; growth in foreign direct investment and the consequent increase in the relative demand for skilled labour; and, fall in real minimum wages and decline of trade union strength of the unskilled workers are cited in the empirical literature as the prime factors responsible for the growing incidence of wage inequality in the Latin American countries in the liberalized trade and investment regime. The present note examines the validity of the empirical findings theoretically in different production structures appropriate for Latin American countries. It shows that unless suitable restrictions on the technological parameters are imposed the above factors may fail to explain the growing incidence of wage inequality, that some of the results are significantly affected by the presence of distortions in the market for unskilled labour and that skill formation does not necessarily lead to a lower wage inequality.

Skilled labour, unskilled labour, wage inequality, Latin American countries, trade liberalization, skill formation

Abstract:
In this paper, a model of interaction of formal and informal credit markets has been developed where the bank official (the ultimate provider of formal credit) faces a lending constraint. The bank official takes a bribe from the borrowers to disburse formal credit and he deliberately debars some potential borrowers from getting bank credit. Inadequate supply of formal credit and exclusion of a few borrowers by the official create a market for informal credit. The bank official and the moneylender (the supplier of informal credit) play a non-cooperative game in determining the bribing rate and the informal interest rate simultaneously. The central objective of the paper is two-fold. First, it shows that an agricultural credit subsidy policy may be counterproductive even when formal and informal credits are substitutes. This is contrary to the Gupta and Chaudhuri (1997) result that a credit subsidy policy is counterproductive only when the two types of credit are complementary to each other. Secondly, the paper considers two alternative ways of formulating a credit subsidy policy: (1) through an increase in the aggregate volume of formal credit supplied to the borrowers, keeping the formal sector interest rate at a reasonable level; and, (2) through a decrease in the rate of interest charged on this type of credit. The paper shows that if a credit subsidy policy is undertaken via the first path, it is actually able to lower the informal sector interest rate and improve both the agricultural productivity and welfare of the farmers. This result is crucial because all the earlier papers in this line have analyzed the effects of a credit subsidy policy through the second route and found it to be counterproductive in the presence of corruption in the distribution of formal credit.

Farmer, moneylender, bank official, formal credit, non-cooperative game, informal interest rate, credit subsidy policy

Abstract:
In this paper, a model of interaction of formal and informal credit markets has been developed where the bank official (the ultimate provider of formal credit) faces a lending constraint. The bank official takes a bribe from the borrowers to disburse formal credit and he deliberately debars some potential borrowers from getting bank credit. Inadequate supply of formal credit and exclusion of a few borrowers by the official create a market for informal credit. The bank official and the moneylender (the supplier of informal credit) play a non-cooperative game in determining the bribing rate and the informal interest rate simultaneously. The central objective of the paper is two-fold. First, it shows that an agricultural credit subsidy policy may be counterproductive even when formal and informal credits are substitutes. This is contrary to the Gupta and Chaudhuri (1997) result that a credit subsidy policy is counterproductive only when the two types of credit are complementary to each other. Secondly, the paper considers two alternative ways of formulating a credit subsidy policy: (1) through an increase in the aggregate volume of formal credit supplied to the borrowers, keeping the formal sector interest rate at a reasonable level; and, (2) through a decrease in the rate of interest charged on this type of credit. The paper shows that if a credit subsidy policy is undertaken via the first path, it is actually able to lower the informal sector interest rate and improve both the agricultural productivity and welfare of the farmers. This result is crucial because all the earlier papers in this line have analyzed the effects of a credit subsidy policy through the second route and found it to be counterproductive in the presence of corruption in the distribution of formal credit.

Farmer, moneylender, bank official, formal credit, non-cooperative game, informal interest rate, credit subsidy policy

Abstract:
The paper is purported to examine the efficacy of trade sanctions in reducing the incidence of child labour in terms of a three-sector general equilibrium model with informal sectors and a non-traded intermediary. One of the two informal sectors produces a non-traded intermediary for the formal manufacturing sector. Child labour is used in the informal sectors and child labour and adult labour are perfect substitutes to each other in these sectors. The effect of trade sanctions on the incidence of child labour has been studied in this set-up. Also the outcome of a reduction in import tariff (trade liberalization policy) has been analyzed. The paper finds that under reasonable conditions trade sanctions may produce perverse effect on the incidence of child labour while a liberalized trade policy is effective in bringing down the prevalence of the evil in the system.

Child labour, trade sanctions, trade liberalization, informal sector, general equilibrium

Abstract:
The paper is purported to analyze the impact of skill formation on the skilled-unskilled wage inequality using a few variants of the HOS-type framework. It shows that the effect of skill formation on the wage inequality depends crucially upon the technologies of production of the economy and institutional nature of the markets for unskilled labour. In the extreme case when all unskilled labour markets are distorted any attempt of skill formation unequivocally accentuates the wage gap and may increase the level of unemployment of unskilled labour. These results point out that the empirical evidence as found in Beyer, Rojas and Vergara (1999) and the World Development Report (1995) that skill formation has contributed in reducing the skilled-unskilled wage gap in some developing countries lack solid theoretical bearing. The paper suggests that institutional reform programs, designed for the removal of labour market distortions, should be given high priority along with skill improvement measures to improve the skilled-unskilled wage inequality in the developing countries.

Skilled labour, unskilled labour, wage inequality, skill formation, institutional reform programs

Abstract:
The paper builds up a Harris-Todaro type general equilibrium model to examine the implications of a free education policy and liberalized trade policies on the child labour market. It shows that an increase in the subsidy on education and/or inflow of foreign capital may produce counterproductive effects on the supply of child labour in the urban sector. These policies are likely to produce adverse effects on urban unemployment of adult labour even if two types of labour are not substitutes.

Child labour, general equilibrium, fertility rate, education subsidy, trade liberalization

Abstract:
The paper has made an attempt to analyse the effects of liberalized trade and investment policies on welfare and open unemployment in a developing economy in terms of a three sector Harris-Todaro type general equilibrium model. Following empirical evidence it is assumed that there is wage rigidity in urban sectors, which leads to the simultaneous existence of open unemployment and an urban informal sector in the migration equilibrium. The paper deserves special attention for its interesting results which are completely opposite to those generated by the standard Harris-Todaro model.

Abstract:
The paper has made an attempt to analyze the effects of liberalized trade and investment policies on welfare and open unemployment in a developing economy in terms of a three sector Harris-Todaro type general equilibrium model. Following empirical evidence it is assumed that there is wage rigidity in the urban sectors, which leads to the simultaneous existence of open unemployment and an urban informal sector in the migration equilibrium. The paper deserves special attention for its interesting results which are completely opposite to those generated by the standard Harris-Todaro model.

Rural-urban migration, urban open unemployment, inflow of foreign capital, trade liberalization

Abstract:
The paper has made a modest attempt to analyze the effects of liberalized trade and investment policies on welfare and open unemployment in a developing economy in terms of a three sector Harris-Todaro (1970) type general equilibrium model. Following empirical evidence it is assumed that there are strong barriers to entry even into the urban informal sector that are reflected in the wage rigidity in this sector, which leads to the simultaneous existence of open unemployment and an urban informal sector in the migration equilibrium. The paper deserves special attention for its interesting results. For example, contrary to the conventional immiserizing result, the paper shows that an inflow of foreign capital in either of the two broad sectors of the economy may be welfare improving. On the contrary, a reduction in import tariff may lower national welfare. Besides, an inflow of foreign capital into the urban sector (a reduction in import tariff) leads to an expansion (a contraction) of the urban sector of the economy. This policy is likely to ameliorate (aggravate) the problem of urban unemployment. These results are completely opposite to those generated by the standard Harris-Todaro model.

Informal Sector, Urban Unemployment, Foreign Capital Inflow, Trade Liberalization, Welfare, Harris-Todaro Framework, Wage Rigidity

Abstract:
Whether a liberalizing developing economy should implement the entire WTO-prescribed package and to what extent this is expedient, are the two burning questions, especially because available empirical evidence suggests that the developing countries have been facing substantial adjustment costs in their endeavor in implementing 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 and a non-traded intermediary. Welfare implications of three liberalization policies: inflow of foreign capital, tariff reduction and labour market reform, have been analyzed. The paper shows that there is no need for a liberalizing country to follow all the recommendations of the WTO, without taking into consideration the net welfare outcome of these policies. Unless, a proper choice among different prescribed policies compatible to the internal institutional, technological and trade related characteristics is made, drastic implementation of reform measures may produce counterproductive result on welfare of the relevant country.

Trade liberalization, general equilibrium, foreign capital, tariff reform, labour market reform, informal sector, non-traded intermediary

Abstract:
The paper develops a three-sector general equilibrium model with two informal sectors with complete mobility of labour between these sectors and with a positive relationship between wage income and labour's efficiency to show that the results relating to foreign capital inflow and removal of protectionism may be counterintuitive to the conventional wisdom. The paper is also devoted to explain why some developing countries implement tariff reforms very slowly compared to others, even after formally choosing free trade as their development strategies, in a more general fashion than the existing tariff-jumping theory.

Abstract:
The paper develops a three-sector general equilibrium model with two informal sectors with complete mobility of labour between these sectors and with a positive relationship between wage income and labour's efficiency to show that the results relating to foreign capital inflow and removal of protectionism may be counterintuitive to the conventional wisdom. The paper is also devoted to explain why some developing countries implement tariff reforms very slowly compared to others, even after formally choosing free trade as their development strategies, in a more general fashion than the existing tariff-jumping theory.

Abstract:
The present note develops a three sector general equilibrium structure with diverse trade pattern and imperfection in the unskilled labour market to analyze the consequences of international mobility of skilled and unskilled labour on the skilled-unskilled wage inequality in the developing economies. The analysis finds that an emigration (immigration) of either type of labour is likely to produce a favourable (an unfavourable) effect on the wage inequality. In particular, the result of emigration (immigration) of skilled labour on the relative wage inequality is counterintuitive. These results have important policy implications for an overpopulated developing country like India.

Skilled labour, unskilled labour, wage inequality, emigration (immigration) of labour, labour market imperfection, diverse trade pattern

Abstract:
This paper is an attempt to analyze the consequence of trade liberalization in agriculture in the developed countries on the incidence of child labour in a developing economy in terms of a three-sector general equilibrium model with informal sectors. Adult labour and child labour are substitutes to each other in the two informal sectors of the economy and are used together apart from capital in producing two exportable commodities. The interesting result that appears from the analysis is that agricultural trade liberalization in the developed countries may be effective in bringing down the incidence of child labour in the system. The paper substantiates the desirability of trade liberalization in agriculture in the developed nations from the perspective of the developing economies for reason other than welfare improvement.

Child labour, trade liberalization in agriculture, informal sector, general equilibrium model

Abstract:
The present paper has made an attempt to analyze the effects of different trade and investment liberalization policies on the incidence of child labour in a developing economy using a three-sector general equilibrium framework with a non-traded final commodity produced by child labour. The interesting result that emerges from the analysis of the paper is that various liberalization policies may have different effects on the supply of child labour. For example, a reduction in import tariff and/or an increase in the price of the export commodity are likely to put downward pressures on the child labour incidence while an inflow of foreign capital may accentuate the problem. The outcomes of different policies, of course, depend crucially on the factor endowments and employment pattern of the economy. In an economy with a substantially large informal sector and scarcity of capital, the growth with foreign capital is likely to produce counterproductive effect on the child labour incidence.

Child labour, general equilibrium, foreign capital, trade liberalization, informal sector

Abstract:
This paper builds a model of fragmented duopsony in backward agriculture following Basu and Bell (1991) in which the purchasers (traders) have captive markets each but compete in a contested market. We focus on the formation of captive markets through trader-farmer interlinkage in the form of interlinked credit-product contracts (ICPCs). ICPC (or the formation of captive markets) is not an entry-preventive strategy in the model. Its motive is to push the farmers to their reservation income level. However, the captive and the contested markets are linked by the requirement that the reservation income of a captive farmer has to equal the income of a farmer in the contested market. In general, in our model strategic considerations determine the extent of use of ICPCs rather than explaining their existence. (In a special case, however, they do explain existence.) We also show that a credit subsidy policy will reduce the size of the captive market, improve the welfare of the farmers and raise the agricultural productivity of the economy while the effects of a price subsidy policy will be ambiguous.

Trader, Farmer, Captive segment, Contested segment, Interlinkage, Nash equilibrium, Subsidy policy

Abstract:
The paper is purported to analyze the impact of skill formation on the skilled-unskilled wage inequality using a few variants of the HOS-type framework. It shows that the effect of skill formation on the wage inequality depends crucially upon the technologies of production of the economy and institutional nature of the markets for unskilled labour. In the extreme case when all unskilled labour markets are distorted any attempt of skill formation unequivocally accentuates the wage gap and may increase the level of unemployment of unskilled labour. These results point out that the empirical evidence as found in Beyer, Rojas and Vergara (1999) and the World Development Report (1995) that skill formation has contributed in reducing the skilled-unskilled wage gap in some developing countries lack solid theoretical bearing. The paper suggests that institutional reform programs, designed for the removal of labour market distortions, should be given high priority along with skill improvement measures to improve the skilled-unskilled wage inequality in the developing countries.

Skilled labour, unskilled labour, wage inequality, skill formation, institutional reform programs

Abstract:
The paper is purported to explore the implications of a credit market reform policy and an overall economic expansion through inflows of foreign capital on the incidence of child labour using a three-sector general equilibrium model. A separate household sector producing child labour has been introduced for the purpose of analysis. It shows that policies to remove imperfection in the informal credit markets may be desirable to mitigate the child labour problem even in the absence of any schooling system and possibility of skill improvement. But, an overall economic expansion (for example, capital accumulation through inflows of foreign capital) may in fact be counterproductive and intensify the child labour problem. The effects of these two policies on national welfare have also been studied.

Child labour, credit market reform, foreign capital inflow, general equilibrium, informal capital market

Abstract:
This paper attempts to examine the implications of foreign capital inflow, which leads to transfer of environmentally sound technology (EST) to the formal manufacturing sector, on the levels of domestic pollution and national income in the presence of an informal sector. The informal sector produces a non-traded intermediary for the formal sector. Owing to environmental regulations the formal manufacturing sector abates the cost of pollution generated from the emission of pollutants in both the formal and the informal manufacturing sectors. It has been found that under some reasonable conditions an inflow of foreign capital raises total domestic pollution and raises national income.

Environmental pollution, Informal sector, Formal sector, Environmentally sound technology, Foreign capital, Non-traded intermediary

Abstract:
The paper attempts to analyze the implications of foreign capital inflow in a small open economy with a non-traded intermediary on the welfare and urban unemployment in a three-sector Harris-Todaro (1970) framework. The standard immiserizing result of a foreign capital inflow has been found to be valid when the non-traded intermediary is solely used in the protected import-competing sector. However, if the export sector too uses the intermediary the economy may experience an improvement in its welfare and a reduction in the urban unemployment level.

Non-traded intermediary, Foreign capital, Welfare, Urban unemployment, Protected import-competing sector, Export sector

Abstract:
Developing countries have been facing substantial adjustment costs in their endeavor in implementing trade reform. To lessen the adjustment costs of trade reform and to diffuse political support for protection a uniform tariff policy has often been recommended. The present paper examines the effectiveness of this policy in terms of a 3 x 4 specific factor full-employment structure reasonable for a developing economy. It shows that whether a symmetric tariff structure would be able to protect all the import-competing sectors crucially depends on the economy's trade pattern. The paper is then extended to include Harris-Todaro type unemployment of unskilled labour to show that the sector using a specific factor should be protected if protection of all the import competing sectors is not feasible.

Full-employment, specific factor, a uniform tariff structure, Hechscher-Ohlin subsystem, skilled labour, unskilled labour, urban unemployment

Abstract:
In a two sector mobile capital Harris-Todaro model, such as Corden and Findlay (1975), an inflow of foreign capital in the presence of protectionist policy is welfare deteriorating as well as unemployment accentuating. But, the developing countries have chosen liberalized investment and trade policies as their development strategies and have been able to attract a considerable amount of foreign capital during the last two decades. A relevant question is why these countries are yearning for foreign capital given its detrimental effects as predicted by the conventional theoretical literature on trade and development. This paper makes an attempt to address the above issue in terms of a three sector Harris-Todaro model with agricultural dualism and a non-traded final commodity. In the given setup, an inflow of foreign capital is likely to improve welfare and does not necessarily worsen the problem of unemployment. The paper may also be useful to explain as to why many of the developing economies have experienced 'jobless growth' in the liberalized regime.

Foreign capital, rural-urban migration, welfare, urban unemployment, general equilibrium, import tariff, jobless growth

Abstract:
The paper attempts to analyze the implications of foreign capital inflow in a small open economy with a non-traded intermediary on the welfare and urban unemployment in a three- sector Harris-Todaro (1970) framework. The standard immiserizing result of a foreign capital inflow has been found to be valid when the non-traded intermediary is solely used in the protected import-competing sector. However, if the export sector uses the intermediary the economy may experience an improvement in its welfare and a reduction in the urban unemployment level.

Non-traded intermediary, Foreign capital, Welfare, Urban unemployment, Protected import-competing sector, Export sector

Abstract:
Removal of tariff restrictions from the relatively low-skill sectors; growth in foreign direct investment; and, decline of trade union strength of the unskilled workers are cited in the empirical literature as the prime factors responsible for the growing incidence of wage inequality in many of the developing countries in the liberalized trade and investment regime. This paper has made an attempt to provide a theoretical foundation of those empirical findings in terms of a three sector general equilibrium model reasonable for at least a few developing economies. The analysis of the paper has found that the wage inequality rises unambiguously due to policies like an increase in the relative price of the high-skill commodity and a reduction of import tariff from the low-skill manufacturing sector. However, an inflow of foreign capital produces a favourable effect on the wage inequality under a reasonable factor intensity condition. Interestingly, contrary to the common wisdom, a policy of labour market reform may raise the competitive unskilled wage and improve wage inequality under reasonable condition.

Skilled labour, unskilled labour, wage inequality, Latin American countries, trade liberalization, labour market imperfection

Abstract:
The paper examines the aptness of labour market reform in a developing country using a three-sector Harris-Todaro model with agricultural dualism and a non-traded final commodity. The paper, contrary to the common belief, finds that liberalization in the labour market may be desirable from the view points of both social welfare and unemployment problem. This theoretical framework may be useful in explaining as to why labour market reform should be regarded as an integral component of the package of liberalized economic policies in the countries in transition.

Labour market reform, unionized wage, rural-urban migration, welfare, urban unemployment, general equilibrium

Abstract:
We introduce international labor mobility in a three-sector general equilibrium model with rural-urban migration. We demonstrate that under some reasonable conditions an inflow of foreign skilled labor (capital) can reduce skilled-unskilled wage inequality.

Skilled-unskilled wage inequality, rural-urban migration, Unemployment, International factor movements

Abstract:
This paper highlights the implication of consumerism on the incidence of child in a developing economy using a two-sector general equilibrium model. It finds that although consumerism raises incomes of the poor households and decreases the earning opportunities of the children, this is not sufficient to control the flow of children to workplace and is likely to worsen the child labour situation. The analysis provides a theoretical framework that can be used for explaining the positive linkage between consumerism and child labour.

Child labour, globalization, consumerism, general equilibrium

Abstract:
The existing theoretical literature does not take into consideration the existence of non-traded goods and the nature of capital mobility between the traded and the non-traded sectors in analyzing the consequences of liberalized investment policies on the relative wage inequality in the developing countries. The present paper purports to fill in this gap using two four-sector general equilibrium models reasonable for a developing economy. We have found that inflows of foreign capital usually improve the wage inequality when the low-skill sector is capital-intensive. But, the relative wage gap may widen if the high-skill sector is capital-intensive. When the non-traded sector produces a non-traded final commodity wage inequality worsens if the low-skill sector is capital-intensive and employs only a very small proportion of the unskilled workforce and if the primary export sector is unskilled labour-intensive. Appropriate policy recommendations for improving the wage inequality have also been made.

Skilled labour, unskilled labour, wage inequality, foreign capital inflows, non-traded goods, intersectoral capital mobility, labour market imperfection

Abstract:
This paper attempts to identify the different channels through which economic reforms can affect the incidence of child labour in a developing economy. Using a three-sector general equilibrium model it shows that inflows of foreign capital can lower the problem of child labour by raising the return to education and reducing the earning opportunities of children. It demonstrates how foreign capital produces favourable effect on the incidence of child labour although it affects wage inequality adversely.

Child labour, general equilibrium, foreign capital, return to education, wage inequality

Abstract:
The paper reexamines the conventional results relating to inflow of foreign capital, removal of protectionism and structural reform programmes, in a small open economy in terms of a two-sector general equilibrium model with an informal sector. The paper shows that in the presence of labour market distortion and a protectionist policy, inflow of foreign capital may be desirable irrespective of the pattern of trade of the economy due to its favourable impact on welfare. But the welfare implications of tariff reductions and/or structural adjustment programmes, such as deregulating the formal sector labour market, depend crucially on the economy's trade pattern. The paper provides an answer to the question as to whether in a developing economy labour market reform and tariff reform should go hand-in-hand or whether one should precede the other for welfare improvement.

Abstract:
This paper is an attempt to analyse the consequence of trade liberalization in agriculture in the developed countries on the incidence of child labour in a developing economy in terms of a three-sector general equilibrium model with informal sectors. Adult labour and child labour are substitutes for each other in the two informal sectors of the economy and are used together apart from capital in producing two exportable commodities. The interesting result that appears from the analysis is that agricultural trade liberalization in the developed countries may be effective in bringing down the incidence of child labour in the system. The paper substantiates the desirability of trade liberalization in agriculture in the developed nations from the perspective of the developing economies for reasons other than welfare improvement.

Abstract:
This paper purports to show that even in a 2 x 2 full-employment production structure, an inflow of foreign capital may be welfare improving in the presence of labour market distortion. However, the existence of labour market distortion is a necessity to obtain this unconventional result. If an inflow of foreign capital is accompanied by labour market reform, the possibility of welfare gain due to foreign capital diminishes. Therefore, there may exist a trade-off between the policies of growth with foreign capital and labour market reform. However, if the inflow of foreign capital is accompanied by a labour-augmenting type technology transfer, it is found that investment liberalization policy and labour market reform may be undertaken concurrently in a developing economy.

Abstract:
The paper develops a four-sector general equilibrium model where the fair wage hypothesis is valid and there is agricultural dualism for analyzing the consequence of an inflow of foreign capital on the skilled-unskilled wage inequality and the unemployment of skilled labour in a developing economy. The unskilled workers are fully employed but there is imperfection in the market for unskilled labour. On the contrary, the skilled wage is set by the firms by minimizing the unit cost of skilled labour and their efficiency depends on the relative income distribution and the unemployment rate. The analysis finds that an inflow of foreign capital worsens the relative wage inequality but lowers the unemployment of skilled labour. It provides an alternative theoretical foundation to the empirical finding that inflows of foreign capital might have produced unfavourable effect on the wage inequality in the developing countries during the liberalized regime by increasing the relative demand for skilled labour.

Fair wage hypothesis, agricultural dualism, skilled labour, unskilled labour, relative wage inequality, foreign capital, unemployment

Abstract:
The paper examines the welfare consequences of an inflow of foreign capital and an emigration of skilled labour in a small open economy in terms of a four sector general equilibrium model in the presence of endogenous skill formation and imperfection in the market for unskilled labour. It finds that both foreign capital and emigration of skilled labour may be welfare-improving although the outcomes of these policies depend on the relative capital intensities of different sectors and the magnitude of imperfection in the market for unskilled labour. Measures like labour market reform and capital subsidy (or tax) to the appropriate sector may be resorted to improve national welfare and ensure higher skills formation.

Foreign capital, Skills formation, Labour market imperfection, National welfare, Labour market reform

Abstract:
Empirical evidence suggests that the incidence of child labour taken as a whole has declined in the developing countries with economic growth due to foreign capital. But, in some high-growth-prone areas, the problem has been on the rise. A pertinent question is why liberalized investment policies have produced dissimilar results in different cases. The present paper is intended to provide an answer to the above question using a three-sector general equilibrium framework with two informal sectors and a non-traded final commodity. The paper is also designed to investigate the efficacy of an education subsidy policy and a lump-sum tax on the richer people in controlling the problem of child labour. We find that the effects of different policies on child labour crucially hinge on the relative intensities in which child labour and adult labour are used in the two informal sectors. However, we find that on the whole a policy of subsidy on education is more effective in comparison with the policy of economic growth with foreign capital in eradicating the prevalence of the evil in the system.

Abstract:
The paper develops a three-sector specific factor model with Harris-Todaro type unemployment to examine the consequences of economic recession in the skilled sector on the informal sector workforce. It finds that while a decrease in the price of high-skill commodity raises both the informal (rural) sector wage and unemployment of unskilled labour, a drop in emigration of skilled labour produces exactly the opposite effects. The effects of these policies on the welfare of unskilled workers in terms of the welfare measure of Sen (1974) have also been studied. The paper recommends a protectionist policy to the unskilled labour-intensive sector for protecting the interest of the vulnerable section of the working population.

Skilled labour, unskilled labour, economic recession, informal wage, urban unemployment

Abstract:
The present paper develops a model of vertical linkage between the formal and informal credit markets highlighting the presence of corruption in the distribution of formal credit. The existing moneylender, the bank official and the new moneylenders move sequentially and the existing moneylender acts as a Stackelberg leader and unilaterally decides on the informal interest rate.

The analysis distinguishes between two different ways of designing a credit subsidy policy. If a credit subsidy policy is undertaken through an increase in the supply of institutional credit it is likely to increase the competitiveness in the informal credit market and lower the informal sector interest rate under reasonable parametric restrictions. Any change in the formal sector interest rate has no effect. An anticorruption measure, on the contrary, may be counterproductive and raise the interest rate in the informal credit market.

Formal/informal credit markets, interest rates

Abstract:
The paper employs a three-sector general equilibrium model for examining the consequences of an infrastructure development scheme to the education sector and an inflow of foreign capital on the skilled-unskilled wage inequality in a developing economy. The education sector faces a capital adjustment cost for which the effective unit cost of capital depends positively on the amount of capital employed. Although both infrastructure development scheme and inflows of foreign capital lead to higher skill formation, the policies produce incongruent effects on the wages of skilled and unskilled labour. Furthermore, the effects of the policies on the skilled-unskilled wage inequality depend crucially on the relative factor intensities of the low-skill and high-skill sectors. Finally, which of the two policies should the country adopt depends on the technological, institutional and trade related factors.

Skill formation, skilled labour, unskilled labour, wage inequality, foreign capital, capital adjustment cost

Abstract:
Global recession is likely to hit the skilled sector or the so-called white goods, white collared sector in a typical developing economy. In this paper we try to analyze the impact of such an event on informal wage as the vast majority of the workforce in the developing world is employed in the unorganized or informal sector. In particular, we demonstrate the analytical possibility that a recession in the skilled sector will actually increase real informal wage.

Recession, skill, capital-labor ratio, informal wage, general equilibrium

Abstract:
This note introduces labour market imperfection in an otherwise Heckscher-Ohlin-Samuelson (HOS) model and provides a theory of unionized wage formation. It demonstrates that this framework satisfies the Stolper-Samuelson theorem and the magnification effect and that it is capable of producing certain results which are contrary to the standard HOS and the Corden and Findlay (1975) results.

Labour market imperfection, Heckscher-Ohlin-Samuelson model, Corden and Findlay model, Foreign capital, Trade liberalization

Abstract:
Foreign Capital, National Welfare and Unemployment in a Fair Wage Model

Fair wage hypothesis, skilled labour, unskilled labour, national welfare, unemployment

Abstract:
This paper purports to examine the validity of the common belief that in a developing economy the backward agricultural sector should be subsidized as poorer group of the working population are employed in this sector that send their children out to work out of sheer poverty. A three-sector general equilibrium framework with agricultural dualism and child labour has been employed for the purpose of analysis. It finds that a price subsidy policy to backward agricultural sector is likely to aggravate the child labour incidence while a credit subsidy to advanced agriculture may be effective in reducing the gravity of the problem in the economy. The paper, therefore, questions the desirability of assisting backward agriculture for eradicating child labour in the society.

Child labour, general equilibrium, agricultural dualism, subsidy policy

Abstract:
This paper has developed a three-sector general equilibrium framework that explains unemployment of both skilled and unskilled labour. Unemployment of unskilled labour is of the Harris-Todaro (1970) type while unemployment of skilled labour is caused due to the validity of the FWH in the high-skill sector. There are two types of capital one of which is specific to the primary export sector while the other moves freely among the different sectors. Inflows of foreign capital of either type unambiguously improve the economic conditions of the unskilled working class. However, the effects on the skilled-unskilled wage inequality and the extent of unemployment of both types of labour crucially hinge on the properties implied by the efficiency function of the skilled workers.

Fair wage hypothesis, skilled labour, unskilled labour, wage inequality, foreign capital, unemployment

Abstract:
This paper analyzes the consequences of international factor movements on the skilledunskilled wage inequality in a dual-economy set-up that includes unemployment and three intersectorally mobile factors of productionunskilled labor, skilled labor, and capital. Thus far, theoretical literature on this subject has adopted the full-employment framework and hence ignored the problem of unemployment. The analysis in this paper reveals that the results crucially depend on the difference in the intersectoral factor intensities between skilled labor and capital. In particular, it demonstrates the existence of a possibility of deterioration in wage inequality following foreign unskilled-labor inflow.

Abstract:
Formation of SEZ using agricultural land with a view to promote industrialization has recently been one of most controversial policy issues in many developing economies including India. This paper theoretically evaluates the consequences of this policy on a developing economy in terms of a three-sector, full-employment, general equilibrium model. It finds that agriculture and SEZ can grow simultaneously provided the government spends more than a critical amount of resources on irrigation projects and other infrastructural development designed at improving the efficiency of land. Agricultural wage and social welfare may also improve owing to such a policy.

Special economic zone, fiscal concessions, agricultural productivity, competitive wage, social welfare

Abstract:
Agell and Lundborg (1995) have accommodated the fair wage hypothesis (FWH) in an otherwise 2x2 Hechscher-Ohlin-Samuelson model for examining the robustness of certain standard trade theorems. The present paper proposes to introduce the FWH in a three sector general equilibrium model with two types of labour: skilled and unskilled. Skilled labour is specific to the high-skill sector and receives the efficiency wage while unskilled labour in the other two sectors receives either the competitive wage or the high unionized wage. Using such a framework the consequences of international mobility of factors of production on the skilled-unskilled wage inequality and unemployment of skilled labour in a developing economy have been analyzed. Both foreign capital inflows and emigration of skilled labour improve the skilled-unskilled wage inequality under reasonable condition. Particularly, the result relating to emigration of skilled labour is counterintuitive.

Fair wage hypothesis, skilled labour, unskilled labour, wage inequality, Foreign capita, unemployment

Abstract:
Formation of Special Economic Zone (SEZ) using agricultural land to promote industrialization has recently been one of most controversial policy issues in many developing economies including India. This paper critically theoretically evaluates the consequences of this policy in terms of a three-sector Harris-Todaro type general equilibrium model reasonable for a developing economy. It finds that agriculture and SEZ can grow simultaneously provided the government spends more than a critical amount of resources on irrigation projects and other infrastructural development designed at improving the efficiency of land. Agricultural wage and aggregate employment in the economy may also improve owing to this policy.

Special economic zone, fiscal concessions, agricultural productivity, rural wage, urban unemployment

Abstract:
This paper builds a model of fragmented duopsony in backward agriculture following Basu and Bell (1991) in which the purchasers (traders) have captive markets each but compete in a contested market. We focus on the formation of captive markets through trader-farmer interlinkage in the form of interlinked credit-product contracts (ICPCs). ICPC (or the formation of captive markets) is not an entry-preventive strategy in the model. Its motive is to push the farmers to their reservation income level. However, the captive and the contested markets are linked by the requirement that the reservation income of a captive farmer has to equal the income of a farmer in the contested market. In general, in our model strategic considerations determine the extent of use of ICPCs rather than explaining their existence. In this set-up we examine the effects of trade liberalization in agriculture on the village economy. We show that a reduction in the credit subsidy will raise the size of the captive market, leads to deterioration in the welfare of the farmers and may lower the agricultural productivity of the economy. On the contrary, an increase in the international price of the crop unambiguously improves the welfare of the farmers but the effect on the agricultural productivity is ambiguous. The paper argues that unless the developed countries liberalize trade in their agricultural sector, it would be premature for the developing countries to go in for agricultural trade liberalization and remove all farm subsidies, as this policy may in fact be counterproductive.

Trader; farmer, captive segment, contested segment, interlinkage, nash

Abstract:
The paper analyzes the implications of a subsidy policy on education and different liberalized trade and investment policies on the incidence of child labour in a developing economy in terms of a three-sector general equilibrium model with informal sector and child labour. The supply function of child labour is endogenously determined. The paper shows that different policies, if undertaken concurrently, may produce mutually contradictory effects, thereby producing little or no impact on the incidence of child labour. The paper provides a theoretical answer as to why the incidence of child labour has not significantly declined in the developing economies in spite of economic development and globalization.

Child labour, general equilibrium, informal sector, education subsidy, trade liberalization

Abstract:
This paper builds a model of fragmented duopsony in backward agriculture following Basu and Bell (1991) in which the purchasers (traders) have captive markets each but compete in a contested market. We focus on the formation of captive markets through trader-farmer interlinkage in the form of interlinked credit-product contracts (ICPCs). ICPC (or the formation of captive markets) is not an entry-preventive strategy in the model. Its motive is to push the farmers to their reservation income level. However, the captive and the contested markets are linked by the requirement that the reservation income of a captive farmer has to equal the income of a farmer in the contested market. In general, in our model strategic considerations determine the extent of use of ICPCs rather than explaining their existence. In this set-up we examine the effects of trade liberalization in agriculture on the village economy. We show that a reduction in the credit subsidy will raise the size of the captive market, leads to deterioration in the welfare of the farmers and may lower the agricultural productivity of the economy. On the contrary, an increase in the international price of the crop unambiguously improves the welfare of the farmers but the effect on the agricultural productivity is ambiguous. The paper argues that unless the developed countries liberalize trade in their agricultural sector, it would be premature for the developing countries to go in for agricultural trade liberalization and remove all farm subsidies, as this policy may in fact be counterproductive.

Trader, Farmer, Captive segment, Contested segment, Interlinkage, Nash equilibrium, Trade liberalization in agriculture

Abstract:
The paper analyzes the implications of trade liberalization on the incidence of child labour in a two-sector general equilibrium framework. The supply function of child labour has been derived from the utility maximizing behaviour of the working families. The paper finds that the effect of trade liberalization on the incidence of child labour crucially hinges on the relative factor intensities of the two sectors.

Child labour, general equilibrium, trade liberalization

Abstract:
Whether a liberalizing developing economy should implement the entire WTO-prescribed package and to what extent this is expedient, are the two burning questions, especially because available empirical evidence suggests that the developing countries have been facing substantial adjustment costs in their endeavor in implementing 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 been first analyzed 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. We have argued that unless a proper choice among different prescribed policies compatible to the internal institutional, technological and trade related characteristics, is made, drastic implementation of reform measures may produce counterproductive result on welfare of the relevant country.

Trade liberalization, general equilibrium, foreign capital, tariff reform, labour market reform, informal sector, non-traded intermediary

Abstract:
We present a three-sector general equilibrium model with an informal sector, which produces an intermediary for the formal sector, to analyze the effects of different policies on the pollution level and welfare of the economy. The informal manufacturing sector creates pollution and higher the use of informal sector product, higher is the pollution created and higher the discrepancy between actual and permissible levels of pollution, so that the abatement cost payable by the formal sector is also higher. The efficiency of a representative worker is inversely related to the level of pollution. In this set-up, we show that even if the permissible pollution level is reduced, the polluting sector may expand and affect welfare adversely. On the other hand, an inflow of foreign capital may reduce the pollution level and increase welfare of the economy. These results are new in the literature of trade and environment.

Pollution, informal sector, pollution abatement cost, permissible level of pollution, foreign capital

Abstract:
Developing countries have been facing substantial adjustment costs in their endeavor in implementing trade reform. To lessen the adjustment costs of trade reform and to diffuse political support for protection a uniform tariff policy has often been recommended. The present paper examines the efficacy of this policy in terms of a 3-4 specific factor full-employment structure reasonable for a developing economy. It shows that whether a symmetric tariff structure would be able to protect all the import-competing sectors crucially depends on the economy's trade pattern. The paper is then extended to include Harris-Todaro type unemployment of unskilled labour. In this framework also the implications of the uniform tariffs and then welfare effects of tariffs on one sector have been studied. Finally, the consequences of tariffs on urban unemployment of unskilled labour have been examined.

Full-employment, specific factor, uniform tariffs, Hechscher-Ohlin subsystem, skilled labour, unskilled labour, urban unemployment

Abstract:
The paper purports to examine the implications of a free education policy and trade liberalization on the child and adult labor markets in the set-up of a Harris-Todaro type general equilibrium model. It has been found that a hike in the education subsidy or inflow of foreign capital may produce counterproductive results on the supply of child labor in the urban area. Moreover, these policies mar raise the level of urban unemployment of adult labor even when two types of labor are not substitutes to each other. The average income of the urban poor families may also decrease as a consequence.

Child labor, urban unemployment of adult labor, general equilibrium, education subsidy, trade liberalization

Abstract:
This paper analyzes the role of the delay in disbursement of formal credit to the small farmers in determination of the form of tenancy in a backward agricultural economy.

Delayed disbursement of formal credit, reverse tenancy, fixed-rental tenancy, small farmer, large farmer

Abstract:
In a production structure reasonable for a developing economy this note shows that there may arise a conflict between the worldwide liberalized trade policies in agriculture, which raise the price of the economy’s primary exportable commodity, and the inflow of foreign capital into the economy. However, if the economy strictly adheres to the different facets of the agricultural trade liberalization policies, e.g. the removal of the indirect farm subsidies, the paper argues that the possible conflict may be avoided. The paper provides a theoretical basis for the removal of the farm subsidies if the economy wants to develop its technologically more advanced sectors with an adequate supply of foreign capital.

Abstract:
This paper is designed to provide different explanations for the existence of credit-product interlinkage in backward agriculture. The paper shows that the credit market imperfection is not the only explanation for the existence of credit-product interlinkage. It can also be explained in terms of product market imperfections and price uncertainty in the product market.

Credit-product interlinkage, credit market, imperfection, product market imperfection, price uncertainty

Abstract:
This note introduces a crop-insurance scheme in a Gupta (1990) type of model of interlinked credit-sharecropping contract. Gupta's proposition that there exists a critical size of innovation for the landlord is shown to be valid even when the landlord does not face any risk of default of loan, if the insurance premium cost is fully borne by the landlord. But when this cost is shared by the tenant and the landlord, then this proposition may not be valid always. This note also shows that the tenant is more likely to resist innovation than the landlord when the output share of the tenant is not greater than his share of insurance premium cost.

Crop-insurance scheme, production uncertainty, interlinked credit-sharecropping contract, innovation, tenant, landlord

Abstract:
The paper develops a model of non-interlinkage between a trader and a large farmer. The trader faces better terms in the product market while the farmer has a clear edge over the former in the credit market. The paper shows that there are still gains from trade between the two, using a Nash bargaining framework, if the trader is a price-taker in the product market. A credit subsidy policy raises the income levels of both the players. On the contrary, if the product market is imperfectly competitive, there may not exist any gains from trade between the two players. If there are still gains from trade, a credit subsidy policy raises the level of income of the farmer but may fail to increase that of the trader.

Large farmer, trader, non-interlinkage, Nash-bargaining game, credit subsidy policy

Abstract:
A theoretical analysis of interest rate determination in the informal credit market has been presented when the market for informal credit is created by inadequate supply of formal credit. The official of the formal credit agency controls the supply of formal credit and he gets a bribe from the moneylender when he rations the supply of formal credit to the farmer. The moneylender and the official play a cooperative game choosing jointly the amount of formal credit and the informal interest rate. Development policy like a credit subsidy policy reduces the informal interest rate and raises the amount of formal credit disbursed by the official. On the contrary, a price subsidy policy raises the informal interest rate and lowers the amount of formal credit disbursed. The paper is an attempt to justify the desirability of a credit subsidy policy theoretically when it is being questioned in a developing country like India.

Inadequate formal credit, informal credit, informal interest rate, credit subsidy policy, Nash bargaining game, official, moneylender

Abstract:
In the existing theoretical literature on credit-product interlinkage, the trader (interlocker) is not allowed to offer a Fixed-Rental Contract (FRC) where the trader leases-in land from the farmer in exchange of a fixed rent for self-cultivation. But if the trader is allowed to offer an FRC, then the existence and optimality of an interlinked credit-product contract cannot be established. This note purports to provide an explanation for the existence and optimality of an interlinked credit-product contract, even when the trader is allowed to offer an FRC, introducing price uncertainty in the product market.

Abstract:
Gupta (1993) presented a theory of co-existence of interlinked credit-labour contract and interlinked credit-product contract in backward agriculture using the 'consumption efficiency hypothesis' of Leibenstein (1957). In this paper, we present an alternative theory of the two-tier interlinkage in terms of credit market imperfection. This paper also shows that product market imperfection, alone or coupled with credit market imperfection, may not be able to explain this type of interlinkage.

Two-tier interlinkage, Consumption efficiency hypothesis, Credit market imperfection.

Abstract:
Gupta (1993) presented a theory of co-existence of interlinked credit-labour contract and interlinked credit-product contract in backward agriculture using the 'consumption efficiency hypothesis' of Leibenstein (1957). In this paper, we present an alternative theory of the two-tier interlinkage in terms of credit market imperfection. This paper also shows that product market imperfection, alone or coupled with credit market imperfection, may not be able to explain this type of interlinkage.

Two-tier interlinkage, Consumption efficiency hypothesis, Credit market imperfection.

Abstract:
An extension of the theoretical analysis of the credit-product interlinkage by Gangopadhyay and Sengupta ("Oxford Economic Papers" 39 (1987) 333-42) is described in this paper, introducing price uncertainty. A distinction is made between the fixed-price interlinked credit-product contract and the fixed-commission interlinked credit-product contract. The results of the model of Gangopadhyay and Sengupta are obtained only in some special cases of this model.

Price uncertainty, interlinkage, fixed-price contract, fixed-commission contract, farmer, trader

Abstract:
The paper provides a theory of interest rates determination in the informal credit market in backward agriculture highlighting the interactions between two informal sector lenders (a professional money lender and a trader-interlocker) and explains the prevalence of different interest rates in the rural credit market. The trader and the moneylender play a non-cooperative game in choosing the extent of interlinkage and the non-interlinked informal interest rate, respectively. In the interlinked credit-product contract, the trader offers the interlockees a product price equal to the open market price and his entire surplus comes from his activities in the credit market. These results are completely opposite to those found in the existing literature on interlinkage. A price subsidy policy reduces the extent of interlinkage chosen by the trader while a credit subsidy policy may raise it. Besides, the subsidy policies unequivocally raise the non-interlinked informal interest rate of the moneylender but may lower the welfare of the farmers and the agricultural productivity. In this context, an alternative credit policy of forging a vertical linkage between the formal and informal credit markets has been considered. It has been found that a credit subsidy policy under the new system is able to raise the agricultural productivity and improve the welfare of the farmers by ameliorating their borrowing terms in the credit market.

Moneylender, Trader, Informal interest rate, Nash equilibrium, Subsidy policy, Interlinkage.

Abstract:
The paper presents a theory of interest rate determination on informal credit in backward agriculture when there is a market for formal credit. The farmer has to bribe the official of the formal credit agency in order to get formal credit. The official and the moneylender play a non-cooperative game in choosing the amount of formal credit and the informal interest rate, respectively. The informal-sector interest rate and the effective formal-sector interest rate (incorporating the bribe) are equal in equilibrium. A reduction in the formal interest rate and/or an increase in the price of the product may lead to an increase in the equilibrium bribing rate and the informal interest rate when the formal credit and the informal credit are complementary to each other.

Formal credit, Informal credit, Agricultural subsidy policies, Bribery, Nash equilibrium.

Abstract:
The paper presents a theory of interest rate determination in the informal credit market in backward agriculture. The market for informal credit is created by the delay in disbursement of formal credit. The delay is controlled by the official of the formal credit agency, and he is bribed by the farmer to reduce the delay. The official and the moneylender play a non-cooperative game in choosing the bribing rate and the informal interest rate, respectively. The informal sector interest rate and the effective formal sector interest rate (incorporating the bribe) are equal in equilibrium. Agricultural price and credit subsidy policies may raise the interest rate in the informal credit market.

Farmer, Moneylender, Formal credit, Bribery, Interest rate, Subsidy policy, Nash equilibrium

Abstract:
A model of interlinked credit-product contracts between small farmers and large farmers when the small farmer faces delay in getting formal credit and the large farmer does not, has been developed. The small farmer remains on the reservation income level, and his reservation income is inversely related to the length of the delay. However, this does not hamper the productivity of the small farmer. The large farmer extracts the surplus through the interlinked contract and this surplus is positively related to the length of the delay. Interlinkage and non-interlinkage equilibria become identical if the small farmer gets the formal credit at the beginning of the crop cycle. Various subsidy policies worsen the distribution of formal credit.

Formal credit, informal credit, interlinkage, delayed disbursement, small farmer, large farmer

Abstract:
The paper reexamines the conventional results relating to inflow of foreign capital, removal of protectionism and structural reform programmes, in a small open economy in terms of a two-sector general equilibrium model with an informal sector. The paper shows that in the presence of labor market distortion and a protectionist policy, inflow of foreign capital may be desirable irrespective of the pattern of trade of the economy due to its favorable impact on welfare. But the welfare implications of tariff reductions and/or structural adjustment program like deregulating the formal sector labor market depend crucially on the economy's trade pattern. The paper provides answer to the question as to whether in a developing economy labor market reform and tariff reform should go hand in hand or one should precede the other for welfare improvement.

Foreign Capital Inflow, Tariff Reforms, Wage Efficiency Hypothesis, Structural Reform Program, Labor Market Distortion