We extend the benchmark model of DMP in a two-sector general equilibrium framework by introducing a frictionless segment of the labour market. We also examine the effects of trade reforms and labour market reforms on equilibrium rate of unemployment and wage inequality in our stylitzed economy....

Abstract: The present paper explains the different effects of trade reform on urban unemployment in a mobile capital model where urban formal wage is endogeneous and urban informal sector is globally connected. The main finding is that import-led reform raises urban unemployment, whereas...