Financial liberalization,urban unemployment and welfare: some implications of the artificial low interest rate and the high wage rate policies in LDCs |
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| Institution: | 1. Instituto de Astronomía, Universidad Nacional Autónoma de México, Ensenada, B.C., Mexico;2. CONACYT - Instituto de Astronomía, Universidad Nacional Autónoma de México, Ensenada, B.C., Mexico;1. Research Hub, Bank of England, Threadneedle Street, EC2R 8AH London, United Kingdom;2. CEPR, United Kingdom;3. King’s College London, United Kingdom;4. Barclays, United Kingdom;1. Key Laboratory of Concrete and Prestressed Concrete Structures of the Ministry of Education, Southeast University, Nanjing 210096, China;2. Guangxi Construction Engineering Group Corporation Limited, Nanning 530200, China |
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| Abstract: | This paper investigates how the low interest rate policy in the commercial banking sector affects the urban unemployment in a small open Harris-Todaro model. The rate of urban unemployment unambiguously declines. The volume of it shrinks if the rural-to-urban employment rate and the urban unemployment rate are sufficiently high relative to the wage elasticity of agricultural labor demand. The national income increases if agriculture is dominant in the domestic production. In such an economy, the “financial liberalization” advocated by the Mckinnon-Shaw school may aggravate the welfare even if it eliminates the “financial repression”. |
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