Inward‐looking policies, finite change, and employment: The capital reallocation effect

Abstract

It is well recognized that there emerged a trend of inward looking trade policies even before COVID pandemic crippled the world. These were reflected in both BREXIT and US-China trade conflict. As countries become inward oriented, usually local prices start rising. With this backdrop this paper explores how rising local prices are likely to affect employment in the short and long run when we accommodate for finite change in a general equilibrium structure whereby sectors not only contract but might close down altogether due to capital reallocation effect following a price incentive. Mechanisms behind employment increase are very much different between the short and the long run. We discuss such mechanisms and results in a variety of structures essentially highlighting the significance of the extensive margin, targeted protection and nontraded good.

Customs Union, Wage Inequality and Welfare in General Equilibrium

“…Country A produces an exportable intermediate good, Y , and an import-competing intermediate good, M , with the help of unskilled labour and capital which are perfectly mobile. Thus, sectors Y and M form a Heckscher–Ohlin (H–O) nugget in this three-sector model (Jones & Marjit 1992; Marjit et al, 2020; Marjit & Gupta, 2022). It is assumed at the beginning, the intermediate product Y is exported by country A to both country B and the ROW.…”

“…We also assume, initially each country trades with ROW and among them. The basic structure is a hybrid of specific factor model with a Heckscher-Ohlin nugget, as we find in the works of Beladi and Marjit (1992), Gruen and Corden (1970), Marjit and Gupta (2022) and so forth along with skilled-unskilled division of workforce in line with the works of Beladi et al (2018), Chaudhuri and Banerjee (2010), Marjit and Acharyya (2003), Marjit et al (2004), Mitra and Gupta (2020), Marjit and Kar (2005) and so forth. 5 We have explored the possibility of formation of customs union in terms of reduction in tariff rate on the respective imports of the two countries compared to the tariff rate on the imports from the ROW.…”

“…6.The literature on finite change is quite extensive. One can refer to the works of Beladi et al (2016), Jones (2008, 2014), Jones and Findlay (2000), Marjit and Gupta (2022), Marjit and Mandal (2016) and so forth.…”

Role of Finance in Dixit-Stiglitz-Krugman Model of International Trade

“…We now consider the case of unemployment to see how finance becomes critical in a situation of unemployment. We draw from Davis (1998), Meckel (2020), Marjit and Mandal (2021), and from more contemporary interest in the topic on trade and unemployment (Marjit, Ganguly and Acharyya (2021), and Marjit and Gupta (2022). Let us suppose that now in the full employment set up, one of the countries imposes a minimum wage.…”