In the context of quality content of export baskets becoming the most important determinant of export growth for developing countries, we show that reduction in tariff on final import goods asymmetrically affects the quality of skill‐based export goods that differ with respect to the relative skill intensity of their higher‐quality varieties. This offers a plausible explanation for asymmetric quality variations across product groups observed for Brazil and India since the 1980s. On the contrary, tariff‐reduction‐induced quality variations, regardless of their asymmetry, accentuate wage inequality in all dimensions by depressing the informal unskilled wage through displacement of unskilled workers from the formal sector and the consequent informalization of the economy. This suggests that tariff reductions accentuating wage inequality, as shown in the existing literature, may be underestimated if induced variations in the quality of export goods are unaccounted for. A quality‐content production subsidy or a subsidy targeting the use of skilled labor, given to producers of the export good whose quality is downgraded as a consequence of tariff reduction, can be used as a concurrent policy to mitigate such effect. The wage inequality will also decline to some extent following such subsidies. A proportional factor income tax may be a quality‐neutral way to finance the subsidies.

The path‐breaking work of Card and Krueger, showing that a higher minimum wage can increase employment, turned the age‐old conventional wisdom on its head. This paper demonstrates that this apparently paradoxical result is perfectly plausible in a competitive general equilibrium production structure of a small open economy with a non‐traded good, without recourse to monopsony, spatial heterogeneity, heterogeneity of consumers and so on, the usual theoretical drivers behind the result. Following Jones and Marjit, we build a simple general equilibrium model with production complementarity and we show that a higher minimum wage can raise aggregate employment. Expansion in the non‐traded sector following a wage hike may be consistent with the overall expansion of the export sector in a multi‐good framework, an unlikely outcome in a conventional two‐good model which cannot accommodate with production complementarity.

We examine the implications of the emigration of unskilled workers for the quality of a skill-based good exported by a small open economy. This issue is relevant in the context of quality constraints faced by the developing countries like China and India in promoting their exports, on the one hand, and the significantly large emigrations of workers, particularly unskilled workers, which lower their productive capacities, on the other hand. We show that even though unskilled workers are not directly used in the production of quality-differentiated export goods, their emigration would lower export quality when quality upgradation requires more intensive use of skilled workers relative to capital. This result follows from the complementarity between skilled and unskilled wages in a competitive general equilibrium model. A quality-content production subsidy in such a case can mitigate the adverse effects of emigration. The significantly large remittances received from unskilled emigrants create scope for taxing such remittances to finance the subsidy. JEL Classification: F16, F20, F22, F24

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