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Market Distortions and Welfare in Developing Countries: A Search for Critical Levels of Reforms

Author

Listed:
  • Dibyendu Banerjee

    (Serampore College, University of Calcutta)

  • Purbasha Bhattacharyya

    (Basanti Devi College, University of Calcutta)

  • Susmita Chatterjee

    (Maharaja Manindra Chandra College, University of Calcutta)

Abstract

This work theoretically finds out the welfare implications of different reformatory policies in a small open developing economy using a 2 × 2 full-employment general equilibrium model with distorted factor and product markets. We have found that there exists a trade-off between labour market and credit market reforms, and that there might exist certain critical levels beyond which the implementation of the policies might produce perverse effects on social welfare. Even though our results are interesting and have important policy bearings, their applications in reality in a large democratic country like India, may not be practicable because of political economy reason.

Suggested Citation

  • Dibyendu Banerjee & Purbasha Bhattacharyya & Susmita Chatterjee, 2024. "Market Distortions and Welfare in Developing Countries: A Search for Critical Levels of Reforms," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 67(2), pages 501-522, June.
    • Handle: RePEc:spr:ijlaec:v:67:y:2024:i:2:d:10.1007_s41027-024-00496-3
    DOI: 10.1007/s41027-024-00496-3
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    Keywords

    Market distortion; Reformatory policy; Developing economy; Pareto optimal solution; Critical level of reform; Political economy consideration; General equilibrium model;
    All these keywords.

    JEL classification:

    • D59 - Microeconomics - - General Equilibrium and Disequilibrium - - - Other
    • D60 - Microeconomics - - Welfare Economics - - - General
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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