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Journal of Economic Integration 2005 March;20(1) :123-138.
Foreign Investment, Urban Unemployment, and Informal Sector

Shigemi Yabuuchi Hamid Beladi Gu Wei 

Nagoya City University
North Dakota State University
Kansai Research Institute
Copyright ©2005 Journal of Economic Integration
In this paper we extend the Harris-Todaro model to include an urban informal sector. The effects of exogenous inflow of foreign capital on outputs, unemployment and welfare are examined in the model where the product of the informal sector is used as an industrial input in the urban formal sector. We also analyze the implications of the capital inflow for income distribution.

JEL Classification: F21, R23, O17

Keywords: Harris-Todaro model | Foreign investment | Welfare
1. Beladi, H. and S. Marjit (1992), "Foreign capital and protectionism", Canadian Journal of Economics 25, 233-238.
2. Chandra, V. and M. A. Khan (1993), "Foreign investment in the presence of an informal sector", Economica 60, 79-103.
3. Chao, C. C. and E. S. H. Yu (1994), "Foreign capital inflows and welfare in an economy with imperfect competition", Journal of Development Economics 45, 141-154.
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