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Dualism, exchange rate, and employment: a structuralist model

  • Moumita BasuEmail author
  • Ranjanendra Narayan Nag
Article
  • 9 Downloads

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.

Keywords

Dualism Informal credit Exchange rate Employment 

JEL Classification

E24 E43 E62 F31 

Notes

Compliance with ethical standards

Conflict of interest

On behalf of all authors, the corresponding author states that there is no conflict of interest.

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Copyright information

© Department of Economics, Delhi School of Economics, University of Delhi, India 2018

Authors and Affiliations

  1. 1.Department of EconomicsBidhannagar CollegeKolkataIndia
  2. 2.KolkataIndia
  3. 3.Department of EconomicsSt. Xavier’s College (Autonomous)KolkataIndia

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