A three-sector, three-factor general equilibrium model is developed for a small open developing economy where an inflow of foreign capital generates externalities in the presence of a non-traded final commodity. There are two types of capital and the efficiency of labor depends positively on the consumption of the non-traded commodity. Effects of inflows of foreign capital on social welfare and human capital formation are examined. The analysis finds that while capital that is used in all the sectors may improve welfare, capital used specifically in the non-traded sector is likely to affect social welfare adversely. These results, which hold for a wide range of parameter values, can at least question the desirability of allowing entry of foreign capital in the non-traded final good sector that emanates externalities.

SARBAJIT CHOWDHURY

Economics

Fulltext

University of Calcutta (informally known as Calcutta University or CU) is a collegiate public state university located in Kolkata, West Bengal, India.&nbsp;Within India it is recognized as a &quot;Five-Star University&quot; and accredited &quot;A&quot; Grade by National Assessment and Accreditation Council.

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The University of Calcutta has secured the Fifth position among the Universities of India in the prestigious &quot;Indian University Ranking 2019&quot; list, released by the NIRF of the Ministry of Human Resource Development, Government of India.

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It was established on 24 January 1857, and was one of the first institutions in Asia to be established as a multidisciplinary and Western-style university. Its alumni and faculty include several heads of state, heads of government, social reformers, prominent artists, only academy award winner and Dirac medal winner in India, many Fellows of the Royal Society and five Nobel laureates as of 2019 which is highest in South Asia.

University Of Calcutta

International Review of Economics and Finance

We examine the welfare consequences of foreign direct investment (FDI) flows and credit market reform in a small open developing economy using a 2 × 2 full-employment general equilibrium model with both labour market and capital market distortions. Apart from factor market imperfections, there is a tariff on the import-competing sector, which creates commodity market distortion. We find that either of the two policies can lead to welfare improvement under reasonable conditions. Subsequently, using a two-sector, specific factor Harris-Todaro type mode; like that of Beladi and Naqvi (1988), we have verified the robustness of the result that have earlier obtained in the full-employment case. We have found that although the effects of FDI flows on both welfare and urban unemployment are ambiguous, credit market reform unequivocally improves welfare and mitigates the unemployment problem. Considering both the cases together, it might be concluded that as a policy, credit market reform is distinctly superior relative to investment reform. The results could be useful for policymaking in a developing economy like India where multiple distortions coexist. © 2019 Elsevier Inc.

Foreign direct investment and credit market reform in a developing economy: Could these be alternative policies?

This paper is aimed at theoretically examining the consequence of the anti-immigration policy adopted in the destination country on the skilled-unskilled wage inequality in a source nation using a couple of two-sector, specific-factor general equilibrium models in both the presence and absence of unemployment. Emigration requires incurring some capital cost for professional skill formation on the part of every prospective emigrant that adds to the opportunity cost of emigration. The authority of the destination country determines the number of visas to be granted and hence directly controls the magnitude of skilled emigration from the source country. In the migration equilibrium, the expected skilled wage income abroad is equal to the opportunity cost of emigration. In both the presence and absence of unemployment of unskilled labor, the outcome of the policy on the wage inequality crucially hinges on both the magnitude of the fixed cost of emigration and the technological factors. In the specific-factor Harris-Todaro model, the degree of imperfection in the unskilled labor market is an additional factor. Finally, some policy recommendations have been made for protecting the interest of the poor unskilled workforce.

Economics and Politics

Anti-immigration policy in the destination country and skilled-unskilled wage inequality in a source economy with or without unemployment

The paper develops a three-sector full-employment general equilibrium model for a small open developing economy with exogenous labour market imperfection and a non-traded sector providing healthcare services, the consumption of which generates positive externalities. Our main objective is to show that the optimal consumption subsidy to healthcare, if solely judged from the standpoint of economic growth, is strictly positive (zero) when the production technology of the healthcare sector is of the variable (fixed) coefficient type. However, in the variable coefficient case, the optimal per capita expenditure on healthcare crucially hinges on the degree of labour market imperfection and the quality of services provided by the healthcare sector. The latter result can possibly be considered as a theoretical justification why the magnitude of per capita public spending on healthcare services is significantly lower in the developing countries compared to that in the developed nations. Besides, using the Sen's (1974) index of social welfare that takes into consideration both the growth and income inequality aspects, we have proved that the optimal health subsidy is positive irrespective of the nature of production technology of the healthcare sector. Furthermore, most of these results are found to be valid even in the presence of Harris-Todaro type unemployment. Finally, the results lead to a few important policy implications in the context of the developing countries. © 2017 Elsevier Ltd

Economic Modelling

Subsidizing healthcare in the presence of market distortions

This theoretical paper shows that developing countries possess an inherent shock-absorbing mechanism that stems from their peculiar institutional characteristics and can lessen the gravity of detrimental welfare consequence of international terms-of-trade disturbances in terms of a static two-sector, full-employment general equilibrium model with endogenous labour market distortion. The supply of foreign capital in the economy is a positive function of the return to capital. Subsequently, it has been verbally explained why the main result of the full-employment model would remain valid even in a two-sector specific-factor Harris-Todaro type model with urban unemployment. The analysis leads to a couple of important policies that should be adhered to preserve this in-built system. Finally, it offers three important statistically testable hypotheses which would pave the way for future empirical research in this area. © 2016 Elsevier B.V.

Endogenous labour market imperfection, foreign direct investment and external terms-of-trade shocks in a developing economy

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. © 2006 Blackwell Publishing Ltd.

Journal	Data powered by TypesetInternational Review of Economics and Finance
Publisher	Data powered by TypesetELSEVIER SCIENCE BV
ISSN	1059-0560