A General Equilibrium Skill Acquisition Model of Development - Some Comments

Mameit Deme, David Franck and Nadeem Naqvi (2005) have shown that the increased government expenditure on education, training and skill acquisition leads to lower unemployment rate, expansion of the urban formal sector and the contraction of the urban informal sector. This is observed in Lesotho. The result is based on the two vital assumptions: public expenditure on education, training and skill acquisition should be very large; and the skill acquisition function is a rising step function. I am not against the result obtained in the paper of Mamit Deme, David Franck and Nadeem Naqvi (2005). However, I have something to say here. The same conclusion can be reached even without the two vital assumptions made by them. Increased government expenditure on skill acquisition may lead to lower unemployment, flashing urban formal sector and disappointing urban informal sector, no matter what would be the volume of such expenditure and the type of skill acquisition function. The present paper builds up a general equilibrium model with perfect capital mobility to analyse the impact of government expenditure on skill acquisition on urban unemployment, urban formal sector and the urban informal sector