GEP 16/10: Technology, Trade and 'Urban Poor' in a General Equilibrium Model with Segmented Domestic Factor Markets

Abstract

Motivated by a set of stylised facts based on the provincial data for India, this paper, by utilising a four-sector general equilibrium framework with segmented labour and capital markets (domestic), proposes that factor-specific technological progress only in the capital-intensive segment of the urban formal sectors may affect the urban informal workers adversely, while a technological progress (trade-induced) in the vertically integrated skill-intensive formal sector benefits them. The quantitative analysis demonstrates that when both of the formal sectors undergo capital-using technological progress, urban informal wage may improve, provided the vertically integrated formal sector could save more on the capital cost of production compared to the relatively capital-intensive formal sector and capital flows to the informal sectors. This helps understand trends in urban poverty given the strong association between urban informal wage and the degree of urban poverty. 
 

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Author

Soumyatanu Mukherjee

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