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.