Foreign Capital and Skilled-unskilled Wage Inequality in a Developing Economy with Non-traded Goods

doi:10.1016/S1574-8715(08)04012-8

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Foreign Capital and Skilled-unskilled Wage Inequality in a Developing Economy with Non-traded Goods

Book Chapter•DOI•

Foreign Capital and Skilled-unskilled Wage Inequality in a Developing Economy with Non-traded Goods

Sarbajit Chaudhuri¹, Shigemi Yabuuchi²•Institutions (2)

University of Calcutta¹, Nagoya City University²

01 Jan 2008-Social Science Research Network-Vol. 4

TL;DR: In this article, the authors examined the impact of foreign capital inflows on the relative wage inequality in the developing countries by using two four-sector general equilibrium models for a developing economy, where non-traded goods are intermediate inputs and final goods.

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Abstract: The existing theoretical literature does not adequately take into consideration the existence of non-traded goods and the nature of capital mobility between the traded and the non-traded sectors in analyzing the consequences of liberalized investment policies on the relative wage inequality in the developing countries. The present chapter purports to fill in this gap by using two four-sector general equilibrium models reasonable for a developing economy. We have examined the outcome of foreign capital inflows on wage inequality when non-traded goods are intermediate inputs and final goods. Appropriate policy recommendations for improving the wage inequality have also been made.

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Journal Article•DOI•

Foreign Capital Inflow, Skilled-Unskilled Wage Inequality and Unemployment of Unskilled Labour in a Fair Wage Model

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Sarbajit Chaudhuri¹, Dibyendu Banerjee²•Institutions (2)

University of Calcutta¹, Serampore College²

15 Aug 2009-Social Science Research Network

TL;DR: In this article, a three-sector general equilibrium framework was developed to explain the unemployment of both skilled and unskilled workers in the USA, where two types of capital are specific to the primary export sector and the other moves freely among the different sectors.

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Abstract: This paper has developed a three-sector general equilibrium framework that explains unemployment of both skilled and unskilled labour. Unemployment of unskilled labour is of the Harris-Todaro (1970) type while unemployment of skilled labour is caused due to the validity of the FWH in the high-skill sector. There are two types of capital one of which is specific to the primary export sector while the other moves freely among the different sectors. Inflows of foreign capital of either type unambiguously improve the economic conditions of the unskilled working class. However, the effects on the skilled-unskilled wage inequality and the extent of unemployment of both types of labour crucially hinge on the properties implied by the efficiency function of the skilled workers.

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48 citations

Cites background or methods from "Foreign Capital and Skilled-unskill..."

...The theoretical literature explaining the deteriorating wage inequality in the developing countries includes works of Feenstra and Hanson (1996), Marjit and Acharya (2003), Marjit and Kar (2005), Yabuuchi and Chaudhuri (2007), Marjit, Beladi and Chakrabarti (2004), and Chaudhuri and Yabuuchi (2007)....
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...The paper of Feenstra and Hanson (1996) is based on the famous Dornbusch-Fischer-Samuelson continuum-of-goods framework....
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...Unskilled labour is 4 This composite input is called ‘land-capital’ in the works of Bardhan (1973), Chaudhuri (2007) and Chaudhuri and Yabuuchi (2008)....
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...The paper of Feenstra and Hanson (1996) is based on the famous Dornbusch-Fischer-Samuelson continuum-of-goods framework. According to them, inflows of foreign capital induced greater production of skilled-intensive commodities in Mexico, thereby leading to a relative decrease in the demand for unskilled labour. Marjit, Beladi and Chakrabarti (2004) have also studied the consequences of an improvement of terms of trade and inflows of foreign capital on wage inequality with or without trade fragmentation....
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...The theoretical literature explaining the deteriorating wage inequality in the developing countries includes works of Feenstra and Hanson (1996), Marjit and Acharya (2003), Marjit and Kar (2005), Yabuuchi and Chaudhuri (2007), Marjit, Beladi and Chakrabarti (2004), and Chaudhuri and Yabuuchi (2007). They have shown how trade liberalization, international migration of labour and inflows of foreign capital might produce unfavourable effects on the wage inequality in the South given the specific structural characteristics of the less developed countries, such as features of labour markets, structures of production, existence of non-traded goods, nature of capital mobility etc....
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Journal Article•DOI•

Foreign capital inflow, skilled–unskilled wage inequality and unemployment of unskilled labour in a fair wage model

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Sarbajit Chaudhuri¹, Dibyendu Banerjee²•Institutions (2)

University of Calcutta¹, Serampore College²

01 Jan 2010-Economic Modelling

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45 citations

Journal Article•DOI•

Institutional quality and skilled–unskilled wage inequality

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Jiancai Pi¹, Yu Zhou¹•Institutions (1)

Nanjing University¹

01 Sep 2013-Economic Modelling

TL;DR: This paper established two-sector general equilibrium models in the presence of unproductive activities to investigate how an improvement of the institutional quality influences the skilled-unskilled wage inequality, and they found that the improvement of institutional quality will affect the interest rate and then combining with the capital intensity will generate an impact.

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37 citations

Journal Article•DOI•

Skilled–unskilled wage inequality, nontraded good and endogenous supply of skilled labour: A theoretical analysis

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Manash Ranjan Gupta¹, Priya Brata Dutta¹•Institutions (1)

Indian Statistical Institute¹

01 Sep 2010-Economic Modelling

TL;DR: In this article, the authors developed a static four sector competitive general equilibrium model of a small open economy in which skilled labour is endogenously produced by the education sector and is mobile between a traded good sector and a nontraded good sector.

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33 citations

Journal Article•DOI•

International factor mobility, environmental pollution and skilled–unskilled wage inequality in developing countries

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Lijun Pan¹, Yu Zhou², Yu Zhou¹•Institutions (2)

Nanjing University¹, Johns Hopkins University²

01 Jul 2013-Economic Modelling

TL;DR: In this article, a static three-sector general equilibrium model by accommodating environmental pollution was established to investigate the impact exerted by skilled immigrants and foreign direct investment on the skilled-unskilled wage inequality.

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31 citations

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References

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Book•

Unemployment: Macroeconomic Performance and the Labour Market

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Richard Layard, Stephen Nickell, Richard Jackman

01 Jan 1991

TL;DR: In this article, the authors present a review of the macroeconomics of the post-war unemployment in OECD countries and discuss the policies to cut the job search duration and the structure of the job market.

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Abstract: Introduction to New Edition Preface to First Edition 1. Overview THE MICROFOUNDATIONS 2. Wage-Bargaining and Unions 3. Efficiency Wages 4. Wage Behaviour: the Evidence 5. Job Search: the Duration of Unemployment 6. Mismatch: the Structure of Unemployment 7. The Pricing and Employment Behaviour of Firms THE MACROECONOMIC OUTCOME 8. The Macroeconomics of Unemployment 9. Explaining Post-war Unemployment in OECD Countries POLICY IMPLICATIONS 10. Policies to Cut Unemployment Annexes Discussion Questions References

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3,655 citations

Additional excerpts

...16 See Layard et al. (2005) for details....
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...2 See Robbins (1994, 1995, 1996), Wood (1997), Khan (1998) and Tendulkar et al....
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Posted Content•

Foreign Investment, Outsourcing and Relative Wages

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Robert C. Feenstra, Gordon H. Hanson

01 May 1995-Research Papers in Economics

TL;DR: In this article, the authors examine the reduction in the relative employment and wages of unskilled workers in the U.S. during the 1980's and argue that a contributing factor to this decline was rising imports reflecting the outsourcing of production activities.

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Abstract: In this paper we examine the reduction in the relative employment and wages of unskilled workers in the U.S. during the 1980's. We argue that a contributing factor to this decline was rising imports reflecting the outsourcing of production activities. In a theoretical model, we show that any increase in the Southern capital stock relative to that of the North, or neutral technological progress in the South, will increase the relative wage of skilled workers in both countries due to a shift in production activities to the South. Corresponding to this change in the relative wage is an increase in the price index of Northern activities within each industry, relative to that of the South. We confirm that this change in relative prices occurred for the U.S. and other industrialized countries relative to their trading partners. We also estimate that 15-33% of the increase in the relative wage of nonproduction (or skilled) workers in the U.S. during the 1980's is explained by rising imports.

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1,021 citations

Posted Content•

Foreign Investment, Outsourcing and Relative Wages

[...]

Robert C. Feenstra, Gordon H. Hanson

01 Jan 1995-National Bureau of Economic Research

TL;DR: In this paper, the authors examine the reduction in the relative employment and wages of unskilled workers in the U.S. during the 1980's and argue that a contributing factor to this decline was rising imports reflecting the outsourcing of production activities.

...read moreread less

891 citations

"Foreign Capital and Skilled-unskill..." refers background in this paper

...The paper of Feenstra and Hanson (1996) is based on the famous Dornbusch-FischerSamuelson continuum-of-goods framework....
[...]
...The scanty theoretical literature explaining the deteriorating wage inequality in the developing countries includes works of Feenstra and Hanson (1996), Yabuuchi and Chaudhuri (2007) and Marjit, Beladi and Chakrabarti (2004)....
[...]
...The paper of Feenstra and Hanson (1996) is based on the famous Dornbusch-FischerSamuelson continuum-of-goods framework. According to them, inflows of foreign capital induced greater production of skilled-intensive commodities in Mexico, thereby leading to a relative decrease in the demand for unskilled labour. Marjit, Beladi and Chakrabarti (2004) have analyzed how diverse trade pattern and market fragmentation in world trade can adversely affect the skilled-unskilled wage inequality in the developing countries....
[...]

Journal Article•DOI•

Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom

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Adrian Wood¹•Institutions (1)

University of Sussex¹

01 Jan 1997-The World Bank Economic Review

TL;DR: The experience of East Asia in the 1960s and 1970s supports the theory that greater openness to trade tends to narrow the wage gap between skilled and unskilled workers in developing countries.

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Abstract: The experience of East Asia in the 1960s and 1970s supports the theory that greater openness to trade tends to narrow the wage gap between skilled and unskilled workers in developing countries. In Latin America since the mid-1980s, however, increased openness has widened wage differentials. This conflict of evidence is probably not the result of differences between East Asia and Latin America. Instead, the conflict is probably the result of differences between the 1960s and the 1980s, specifically, the entry of China into the world market and, perhaps, the advent of new technology biased against unskilled workers.

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707 citations

Journal Article•DOI•

Tariffs, foreign capital and immiserizing growth

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Richard A. Brecher¹, Carlos F. Diaz Alejandro¹•Institutions (1)

Yale University¹

01 Nov 1977-Journal of International Economics

TL;DR: In this article, the authors consider the implications of an inflow of capital from abroad for a small tariff-imposing country, within the standard two-commodity two-factor model of international trade.

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515 citations

"Foreign Capital and Skilled-unskill..." refers background in this paper

...See for example, Brecher and Alejandro (1977), Khan (1982) and Chau and Yu (1994). using (19) 2P is solved from (20)....
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...See for example, Brecher and Alejandro (1977), Khan (1982) and Chau and Yu (1994)....
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