Technology, trade and 'urban poor' in a general equilibrium model with segmented domestic factor markets

- General equilibrium impacts of technical progress in urban formal sectors on the urban informal workers are discussed.
- Vertical production linkages within the domestic urban economy and international outsourcing of production are considered.
- The model allows for having the formal-informal segmentation in domestic labour and capital markets.
- Numerical analysis using the model's parameters quantifies the changes in informal wages.

Drawing on the evidence from Indian provinces, this paper, using a four-sector general equilibrium model with segmented domestic labour and capital markets, proposes that factor-specific technological progress only in the capital-intensive segment of the urban formal sectors may affect the urban informal workers adversely, while a trade induced progress in the vertically integrated skill-intensive formal sector benefits them. The numerical analysis further illuminates the importance of credit-product inter-linkage to channel the impact on urban informal wage. Such analysis also helps to infer the well-being of the urban poor, given its strong association with the trends in informal wages.