The Extended Heckscher-Ohlin Framework with the Informal Sector

Sugata Marjit and Saibal Kar

in The Outsiders

Published in print March 2011 | ISBN: 9780198071495
Published online September 2012 | e-ISBN: 9780199081257 | DOI:
The Extended Heckscher-Ohlin Framework with the Informal Sector

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This chapter discusses the role of unionization in a country with a sizeable informal segment. It provides a set of examples where formal and informal sector production/service activities coexist for similar product/service categories, where labour is fully mobile, and capital as an input is classified into several specific-factor categories within and outside formal production facilities. It develops two models that are fairly appropriate representations of the true dualistic (formal–informal) production patterns in most developing countries. Using an extended 2 × 2 Heckscher–Ohlin–Samuelson structure with a formal–informal production organization for the same commodity, it is shown that a tariff cut in the import-competing sector increases both informal wages and employment under fairly reasonable assumptions.

Keywords: informal sectors; developing countries; production; Heckscher–Ohlin–Samuelson structure; wages; employment; unionization; Stopler-Samuelson theorem; Rybczynski theorem

Chapter.  6592 words. 

Subjects: Economic Development and Growth

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