Eurasian Economic Review

, Volume 8, Issue 1, pp 115–129 | Cite as

Inflow of educational capital, trade liberalization, skill formation and informal sector

Original Paper

Abstract

This paper talks about a small open economy comprising of three sectors: two formal sectors and one informal sector. One of these formal sectors uses a specific factor which is specially trained labor. “Special training” can easily encompass the issues such as vocational training, technical training, computer literacy, software knowledge etc. Unskilled workers have the option of being trained to get a job in high wage skilled sector or to be employed in the informal sector. In such situation, an inflow of educational capital leads to a change in informal wage while formal wage and rental will remain unchanged. Under reasonable condition informal wage may even go up. Though we have mixed effect in formal sector, informal sector must shrink. An extended version of the model with the incorporation of the effect of trade liberalization policy predicts just the opposite results with regard to informal output and formal wage.

Keywords

Educational capital Informal sector Trade liberalization 

JEL Classification

D5 J31 

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Copyright information

© Eurasia Business and Economics Society 2017

Authors and Affiliations

  1. 1.Department of Economics and PoliticsVisva-Bharati UniversitySantiniketanIndia

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