Sarbajit Chaudhuri and Anindya Biswas
Some recent empirical studies have found that developing countries are more prone to external terms-of-trade shocks compared to developed nations. With this background, the…
Abstract
Purpose
Some recent empirical studies have found that developing countries are more prone to external terms-of-trade shocks compared to developed nations. With this background, the purpose of this paper is to the question of whether developing countries possess any built-in mechanism that can cope with external terms-of-trade (TOT) shocks both theoretically and empirically.
Design/methodology/approach
This paper uses a two-sector, full-employment general equilibrium model with endogenous labour market distortion to conduct its theoretical analysis and then uses an annual panel dataset of 13 small developing countries over the recent time period of 2000-2012 to substantiate its theoretical findings.
Findings
Theoretically, this study finds that developing countries possess an inherent shock-absorbing mechanism that stems from their peculiar institutional characteristics and can lessen the gravity of detrimental welfare consequence of exogenous TOT movements. This analytical result has been found to be empirically valid based on a panel dataset of 13 countries from 2000-2012.
Originality/value
The authors’ analyses suggest that that the developing countries should take utmost caution before adopting the policy of labour market reform because these might impair the effectiveness of their in-built shock-absorbing mechanism against adverse international price movements.
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Sushobhan Mahata, Rohan Kanti Khan, Soumyajit Mandal and Avishek Bose
With the onset of globalization in developing economies, policymakers express serious concerns about the role of the informal economy, a concern also mirrored in the United…
Abstract
With the onset of globalization in developing economies, policymakers express serious concerns about the role of the informal economy, a concern also mirrored in the United Nations (UN) sustainable development goals (SDGs). Numerous attempts have been made to analyse the general equilibrium consequences of globalization in terms of foreign capital inflow on the informal sector in a developing economy. These studies examined the impact of foreign capital inflow through the channels of resource reallocation across sectors and adjustment in the factor and commodity prices. Nevertheless, the efficacy of these channels is contingent upon the assumption of perfectly competitive product markets that is pertinent in the majority of the studies. This chapter attempts to incorporate imperfect competition in the informal economy in a Heckscher–Ohlin-type multi-factor, multi-sector general equilibrium setup. We assume the existence of imperfection in both a homogeneous good-producing industry and a product-differentiating industry and examine how foreign capital inflow in the presence of imperfect competition affects the informal workers, industrial and firm output, product diversity, national income, and welfare. We also analyse how the consequences of foreign capital inflow on the informal economy can vary with the degree of product market imperfection. It is obtained that varying degrees of product market imperfection in the informal economy have only quantitative (magnitude) effects; however, qualitative (directional) effects remain unchanged.
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Sarbajit Chaudhuri and Shigemi Yabuuchi
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…
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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Swati Sinha Babu and Sk Md Abul Basar
The emerging economies of Asia have made remarkable economic progress over the past few decades, primarily driven by rapid structural transformation towards industrialization and…
Abstract
The emerging economies of Asia have made remarkable economic progress over the past few decades, primarily driven by rapid structural transformation towards industrialization and manufacturing in particular. The share of informal manufacturing sector value added to GDP and of employment in the informal sector in total employment has increased considerably in these countries. Although this shift from agricultural to industrial/manufacturing may be seen as positive for the goals of poverty reduction, increased standard of living, formation of human capital, etc., its impact on the environment is often not free from contention. The aim of the paper is to examine the impact of informal manufacturing sector growth on environmental degradation in emerging Asian economies. Here, we have used CO2 emissions as an indicator of environmental degradation. The impact of other exogenous variables, such as population growth, energy consumption, trade openness and foreign direct investment, has also been studied. We have employed the fixed effect model and the random effect model on the data spanning from 2000 to 2022. We have also used the Hausman test to check the suitability of the models. The results of the analysis indicate the presence of a U-shaped relationship between CO2 emissions and informal manufacturing growth, thus refuting the validity of the Environmental Kuznets Curve hypothesis.
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Nivedita Mehta, Sapna Arora and Disha Gulia
This study attempts to recognize obstacles and barriers to financial inclusion in the agriculture sector, propose a framework based on the inter-contextual link between the…
Abstract
This study attempts to recognize obstacles and barriers to financial inclusion in the agriculture sector, propose a framework based on the inter-contextual link between the barriers and understand the financial exclusion in the agriculture sector at the grassroots level. Previously published research articles were used to identify the barriers to financial inclusion, followed by informal interviews and collaborative discussions with the local farmers of the Sonipat district of Haryana and expert interviews using a structured questionnaire. TISM and MICMAC analysis are used to decern the nature of the relationship among the barriers discovered. The authors find that inadequate financial literacy, a shortage of financial awareness and the reluctance of various financial institutions are significant linkage barriers to strong driving and dependence power. High transaction costs and poor infrastructural support are the independent barriers. The paper identifies these new barriers to financial inclusion in the Indian agriculture sector and the framework depicting financial exclusion in India. This paper only gives a framework of barriers and does not quantify the effect of any relationship identified, but strongly emphasizes granting the Indian agriculture sector broad and simple financial access to advance and strengthen the nation's sustainable, inclusive economic growth.
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Biswajit Mandal and Alaka Shree Prasad
This paper aims to strive to model virtual trade resulting from time zone differences in an otherwise Heckscher–Ohlin set up which is absent in the literature. So, the paper adds…
Abstract
Purpose
This paper aims to strive to model virtual trade resulting from time zone differences in an otherwise Heckscher–Ohlin set up which is absent in the literature. So, the paper adds some value to the existing literature on time zones (TZ) and trade.
Design/methodology/approach
A competitive general equilibrium model is developed first to capture the effect of TZ differences on virtual trade. Then the authors examine, in brief, if distance can be accommodated in such framework. Finally, the authors extend the model to incorporate informality.
Findings
It is seen that exploitation of time zone difference benefits skilled labor and hurts capital under reasonable assumption. In what follows, time zone difference exploiting sector expands, whereas the other sector contracts. Then, the model has been extended to examine how distance may also lead to similar outcomes. In addition, the model is further modified to explore the effect of virtual trade in an informality and associated extortion ridden economy. Interestingly, virtual trade turns out to be beneficial to unskilled workers as well, and leads to a fall in the number of extortionists, though informal production is augmented.
Research limitations/implications
This model is a competitive model that may not clearly reflect the realistic world. However, interestingly this may form the basis of looking into some other appealing dimensions of the real world.
Originality/value
TZ and related communication-cost-driven trade arguments are relatively less explored theoretically. Therefore, the work adds some value to the theoretical understanding of outsourcing in service trade that uses day-night differences across the globe.