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In middle-income countries, the informal sector often accounts for a substantial fraction of the urban labor force. We develop a general equilibrium model with matching frictions in the urban labor market, the possibility of self-employment in the informal sector, and scope for rural–urban migration. We investigate the effects of labor market institutions, different types of growth, and company taxes...
An ad hoc rule is often required when modelling trade in multi-country models to ensure that aggregate imports equal aggregate exports in volumes and values. This paper offers an approach that offers some advantages over current methods.
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