Abstract:
This paper provides an elaborate general equilibrium framework by including infor mal economic activities in a model of trade, migration and unemployment. Exis tence of informal activities is critical in generating positive employment effects of
liberal trade policies. Following a tariff cut informal wage increases and rate of
unemployment goes down under reasonable conditions. Next we generalize the
benchmark model to capture the phenomenon of sequential migration: from agri culture to urban informal sector, and then to urban formal sector. Positive employ ment effect of reformatory trade policy partly owes to the fact that the presence of
informal sector directly reduces the cost of migration and, hence, further induces
the process of outmigration from agricultural sector. The paper also extends the
benchmark model to include both informal intermediate and final good
