Open Economy Macroeconomics of Sectoral Interlinkage in a Developing Country
| Published date | 01 November 2015 |
| Author | Pia Ghoshal,Bhaskar Goswami,Ranjanendra Narayan Nag |
| DOI | 10.1177/0015732515598588 |
| Date | 01 November 2015 |
| Subject Matter | Articles |
Open Economy
Macroeconomics of
Sectoral Interlinkage in
a Developing Country
Pia Ghoshal1
Bhaskar Goswami2
Ranjanendra Narayan Nag1
Abstract
The article considers dual economy interlinkage between a capitalistically
organized industrial sector and an agricultural sector. We construct a structuralist
model of sectoral interlinkage to examine importance of the agricultural sector
in a developing economy. We take agricultural output as fixed which, however,
can change due to technological progress. The employment and output in the
industrial sector are determined on the basis of profit maximization in presence of
wage indexation. In this framework, under the assumption of fixed exchange rate
regime, we examine the comparative static effects of rise in food production, rise in
speculative hoarding of food and devaluation on macroeconomic variables, namely,
industrial employment, output and inflation. The model has also been modified to
consider effects of policy changes under flexible exchange rate regime.
JEL: F41, Q17, O41, E24
Keywords
Open economy, sectoral interlinkage, real wage, employment
Introduction
The literature on sectoral interlinkage is copious (Bose, 1989, 1993; Nag & Ghosh,
2003; Dutt, 1986; Rakshit, 1983, 1989). The dual economy models in the existing
literature are primarily closed economy models. The motivation of the present
Foreign Trade Review
50(4) 250–262
©2015 Indian Institute of
Foreign Trade
SAGE Publications
sagepub.in/home.nav
DOI: 10.1177/0015732515598588
http://ftr.sagepub.com
Corresponding author:
Pia Ghoshal, Assistant Professor, Department of Economics, St. Xavier’s College (Autonomous),
30 Mother Teresa Sarani, Kolkata 700 016, West Bengal, India.
E-mail: pia_g@rediffmail.com
1 St. Xavier’s College (Autonomous), Kolkata, West Bengal, India.
2 Department of Economics, Golapbag Campus, Burdwan University, Burdwan, West Bengal, India.
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