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Article
Publication date: 28 September 2010

Abhirup Sarkar

The purpose of this paper is to develop a political economy model for a less developed region where a significantly large number of people belonging to the informal sector…

Abstract

Purpose

The purpose of this paper is to develop a political economy model for a less developed region where a significantly large number of people belonging to the informal sector depend on political favours for their survival due to ill‐defined property rights. The purpose is to show that in such a scenario, democracy and political competition might lead to economic stagnation.

Design/methodology/approach

The arguments in the paper are represented in terms of a theoretical model.

Findings

The central result is that the party with a better political organization will have the incentive to maximize the size of the informal sector, which will also maximize its probability of winning. In equilibrium this party choosing anti‐development policies will have a higher probability to be in power. Thus universal franchise may lead to inefficiencies in such economies. These inefficiencies stem from ill‐defined property rights in the informal sector.

Originality/value

This paper is an original contribution to the class of political economy models of less developed countries.

Details

Indian Growth and Development Review, vol. 3 no. 2
Type: Research Article
ISSN: 1753-8254

Keywords

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Book part
Publication date: 2 June 2008

Brati Sankar Chakraborty and Abhirup Sarkar

Most models attempting to give an account of trade-induced symmetric increase in wage inequality have abandoned the factor price equalization (FPE) framework. The present…

Abstract

Most models attempting to give an account of trade-induced symmetric increase in wage inequality have abandoned the factor price equalization (FPE) framework. The present chapter retains the FPE framework and identifies a plausible route through which trade might increase wage inequality in all trading countries. A two-sector model with one constant returns sector producing basic goods and another increasing returns to scale sector producing fancy goods is developed. A quasi-linear utility function is used to capture the divide between basic and fancy goods. There are two types of productive factors, skilled and unskilled labour, and they differ with respect to their occupational options. Skilled labour can work both in the skill using fancy goods sector and in the unskilled labour using basic good producing sector, whereas unskilled labour is tied down to unskilled job. The model holds possibilities of multiple equilibria and under reasonable parameterization skill premium increases in all countries following trade.

Details

Contemporary and Emerging Issues in Trade Theory and Policy
Type: Book
ISBN: 978-1-84950-541-3

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Book part
Publication date: 2 June 2008

Abstract

Details

Contemporary and Emerging Issues in Trade Theory and Policy
Type: Book
ISBN: 978-1-84950-541-3

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