Purpose: This paper aims to theoretically find out whether investments could close the formal-informal wage gap in India. Design/methodology/approach: The paper builds a general equilibrium model of a developing economy with a large informal sector and a capital-intensive formal sector with...

This paper studies, how allowing foreign capital flows in a developing economy will impact the inter-sector dynamics in terms of allocation of factors of production, relative output and real exchange rate. This paper introduces foreign capital flows to the theory of structural change and...