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Recessionary Shock, Capital Mobility and the Informal Sector

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  • Biswajit Mandal

Abstract

Using the hybrid of Heckscher–Ohlin and Specific Factor models of trade, we show that the economic recession led to shock results for both capitalists and skilled workers. Some of the unionized unskilled workers lose formal sector employment and move onto the informal sector. When capital moves from the formal to the informal segments, both informal employment and wage can go up in latter’s segment. If capital does not move, informal employment expands and wage drops. Thus, recession may have actually benefitted a large number of informal workers.

Suggested Citation

  • Biswajit Mandal, 2016. "Recessionary Shock, Capital Mobility and the Informal Sector," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 17(1), pages 149-162, March.
    • Handle: RePEc:sae:soueco:v:17:y:2016:i:1:p:149-162
    DOI: 10.1177/1391561415621828
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    1. Beladi, Hamid & Yabuuchi, Shigemi, 2001. "Tariff-induced capital inflow and welfare in the presence of unemployment and informal sector," Japan and the World Economy, Elsevier, vol. 13(1), pages 51-60, January.
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    6. Marjit, Sugata & Kar, Saibal & Chaudhuri, Sarbajit, 2011. "Recession in the skilled sector and implications for informal wage," Research in Economics, Elsevier, vol. 65(3), pages 158-163, September.
    7. Beladi, Hamid & Chao, Chi-Chur, 1993. "Non-traded goods, urban unemployment and welfare in LDCs," European Journal of Political Economy, Elsevier, vol. 9(2), pages 281-292, May.
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    10. Chaudhuri, Sarbajit, 2009. "Economic Recession and Informal Sector Workers," MPRA Paper 18033, University Library of Munich, Germany.
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    Cited by:

    1. Beladi, Hamid & Mandal, Biswajit, 2011. "Recessionary shock and factor return in an underemployed economy," MPRA Paper 33733, University Library of Munich, Germany.

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    More about this item

    Keywords

    International trade; informal sector; general equilibrium;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium

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