ABSTRACT
The effects of various reformatory policies in any developing economy have always been a pulsating area of research. Considering this concern, this chapter examines the effects of reformatory policies such as labour market reform, tariff cuts, changes in subsidies, and bureaucratic reforms in a small open economy comprising of both formal and informal sectors. It is found that the implications of labour market reform and tariff liberalization for factor prices and wage disparity are distinctly opposite. However, the skilled labour of the economy benefits from both labour market reforms and export subsidies. Next, we extend the basic model to bring in related corruption in the informal sector. This presumes the existence of a sector that ensures smooth informal production. There we find that unskilled workers lose owing to both bureaucratic reform and labour market reform. Nevertheless, though traditionally labour market reform is supposed to harm workers, wage disparity gets ameliorated, whereas tariff reform worsens it.
