This paper analyzes the consequences of international factor movements on the skilled-unskilled wage inequality in a dual-economy set-up that includes unemployment and three intersectorally mobile factors of production-unskilled labor, skilled labor, and capital. Thus far, theoretical literature on this subject has adopted the full-employment framework and hence ignored the problem of unemployment. The analysis in this paper reveals that the results crucially depend on the difference in the intersectoral factor intensities between skilled labor and capital. In particular, it demonstrates the existence of a possibility of deterioration in wage inequality following foreign unskilled-labor inflow. Copyright � 2008 The Authors. Journal compilation � 2008 Blackwell Publishing Ltd.

Whether a liberalizing developing economy should implement the entire WTO-prescribed package, and to what extent this is expedient, are two important questions, especially because the available empirical evidence suggests that developing countries have been facing substantial adjustment costs in their endeavour to implement trade and investment reform. The present paper makes a humble effort to provide answers to the above questions in terms of a three-sector general equilibrium model with informal sectors. Welfare implications of three liberalization policies: inflow of foreign capital, tariff reduction and labour market reform, have first been analysed in a full-employment framework. Later, the paper has been extended into a Harris - Todaro framework with an urban informal sector and capital market distortion. We have shown that welfare consequences of a tariff reform and/or a policy of deregulating the labour market crucially depend on the presence and magnitude of foreign capital in the economy. It is argued here that unless a proper choice among different prescribed policies, compatible with the internal institutional, technological and trade-related characteristics, is made, drastic implementation of reform measures may produce counterproductive results for the welfare of the relevant country.Trade liberalization, general equilibrium, foreign capital, tariff reform, labour market reform, informal sector, non-traded intermediary,

The paper presents a theory of interest rate determination on informal credit in backward agriculture when there is a market for formal credit. The farmer has to bribe the official of the formal credit agency in order to get formal credit. The official and the moneylender play a non-cooperative game in choosing the amount of formal credit and the informal interest rate, respectively. The informal-sector interest rate and the effective formal-sector interest rate (incorporating the bribe) are equal in equilibrium. A reduction in the formal interest rate and͞or an increase in the price of the product may lead to an increase in the equilibrium bribing rate and the informal interest rate when the formal credit and the informal credit are complementary to each other.

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