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Dualism, exchange rate, and employment: a structuralist model

Author

Listed:
  • Moumita Basu

    (Bidhannagar College)

  • Ranjanendra Narayan Nag

    (St. Xavier’s College (Autonomous))

Abstract

This paper describes an open economy framework for macroeconomic analysis of sectoral inter-linkage in the presence of dualism in interconnected markets. In particular, we will address different dimensions of dualism in the product market, the credit market and the labour market as well. The product market dualism is the coexistence of an agricultural sector and a demand-constrained industrial sector. The credit market dualism is characterized by existence of formal and informal credit. The dualistic labour market consists of skilled and unskilled workers. We will construct a structuralist model to examine the effects of different macroeconomic policies, namely interest rate policy, capital account liberalization, fiscal policy and administered price policy on employment, the wage gap between skilled and unskilled workers, and sectoral composition of output. The results in this paper critically depend on interactions among food price, industrial output, exchange rate, and interest rates of informal credit market, and wage rate of unskilled workers and multitude of cross effects generated by changes in these prices in response to policy induced shocks. This paper shows that capital account liberalization can generate a contractionary effect in a developing country, while the policy of lowering formal interest rate leads to expansion of both agricultural and industrial sectors which in turn causes employment generation in an emerging market economy.

Suggested Citation

  • Moumita Basu & Ranjanendra Narayan Nag, 2018. "Dualism, exchange rate, and employment: a structuralist model," Indian Economic Review, Springer, vol. 53(1), pages 287-310, December.
    • Handle: RePEc:spr:inecre:v:53:y:2018:i:1:d:10.1007_s41775-018-0028-9
    DOI: 10.1007/s41775-018-0028-9
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    References listed on IDEAS

    as
    1. Pradhan, Narayan, 2013. "Persistence of Informal Credit in Rural India: Evidence from ‘All-India Debt and Investment Survey’ and Beyond," MPRA Paper 80381, University Library of Munich, Germany.
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    6. Ranjanendra Narayan Nag & Partha Pratim Ghosh, 2003. "Industry-Agriculture Interlinkage, Agricultural Trade Liberalization and Supply Constraints: A Post WTO Perspective," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 38(2), pages 235-251, July.
    7. Tang, Sai & Guan, Zhengfei & Jin, Songqing, 2010. "Formal and Informal Credit Markets and Rural Credit Demand in China," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61339, Agricultural and Applied Economics Association.
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    More about this item

    Keywords

    Dualism; Informal credit; Exchange rate; Employment;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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