عامل تحرک بین المللی، نرخ بهره رسمی و سرمایه نقص بازار: تجزیه و تحلیل تعادل عمومی

This paper makes an attempt to provide a theory of determination of interest rate in the informal credit market in a less developed economy in terms of a three-sector static deterministic general equilibrium model. There are two informal sectors which obtain production loans from a monopolistic moneylender and employ labour from the informal labour market. On the other hand, the formal sector employs labour at an institutionally fixed wage rate and takes loans from the competitive formal credit market. We show that an inflow of foreign capital and/or an emigration of labour raises (lowers) the informal (formal) interest rate but lowers the competitive wage rate in the informal labour market when the informal manufacturing sector is more capital-intensive vis-à-vis the informal agricultural sector. International factor mobility, therefore, raises the degrees of distortions in both the factor markets in this case.

There exists financial dualism in less developed countries (LDCs) like India, Pakistan, Bangladesh etc. with two different credit markets — formal credit market consisting of banks, co-operatives etc. and informal credit market consisting of professional moneylenders, traders, landlords etc. The formal credit market is competitive and supplies credit to the organized production sectors of the economy at relatively low rates of interest. On the contrary, the informal credit market is characterized by high degrees of imperfection and is found to be the major source of credit to the unorganized production sectors like agriculture, urban informal sectors etc. Professional moneylenders, having local monopolistic power, charge exorbitantly high rates of interest1 to their borrowers. The theoretical literature dealing with the interaction between the formal credit market and informal credit market consists of two groups. Contributions like Chaudhuri and Gupta (1996), Gupta and Chaudhuri (1997), and Chaudhuri, 1998, Chaudhuri, 2001 and Chaudhuri, 2004 analyze interaction between the two credit markets in the presence of corruption in the loan delivery system in the formal credit market. Rent-seeking behaviour of the formal lender lowers the availability of formal credit and thus a demand for informal credit is created. On the other hand, works like Bose (1998), Hoff and Stiglitz (1996), Floro and Ray (1997), Jain (1999) and Chaudhuri and Ghosh Dastidar, 2011a and Chaudhuri and Ghosh Dastidar, 2011b consider vertical linkages between the two credit markets. Here informal sector lenders act as financial intermediaries between the formal credit agency and the final borrowers of credit. However, models belonging to this literature are built in static one period partial equilibrium framework and deal with a pure agrarian economy. Hence these models neither can focus on the simultaneous determination of all factor prices nor can analyze the effects of various exogenous changes taking place in the different non-agricultural sectors of the economy. A complete static one period deterministic general equilibrium model incorporating the interaction between these two credit markets as well as the interdependence between the urban development and the rural development is found in Gupta (1997). This model provides a framework to analyze the effect of various urban development policies on the relative development of these two credit markets.2 However, Gupta (1997) assumes informal capital to be mobile between the urban informal manufacturing sector and the informal rural sector and keeps formal capital3 to be specific to the formal manufacturing sector. The formal manufacturing sector in that model faces a fixed high wage; but the wage rate is flexible in the two informal sectors.4 Furthermore, the two capital markets in that model are completely disintegrated and there is no scope for formal credit to flow into the informal credit market. Also the informal credit market is assumed to be competitive in that model while there are several theoretical and empirical works emphasizing the imperfection in this credit market.5 Credit transaction is often interlinked with other transactions like output transactions and labour transactions. Professional moneylenders have local monopoly power. Lenders have imperfect information about their borrowers. Also the literature does not comprise of any general equilibrium models that provide a theory of determination of the informal interest rate starting from the behaviour of the informal sector lender in an imperfectly competitive credit market. An informal lender borrows funds from the formal credit market and relends it to the informal borrowers; and in the process maximizes net interest income. So a part of the formal credit enters into the informal credit market; and hence two credit markets are not completely disintegrated. The limitations in the model of Gupta (1997) justify the need for further research in this area introducing imperfection in the informal credit market as well as integration between the formal and the informal credit markets. The present paper develops a static general equilibrium model of a small open economy consisting of three sectors — a formal, an informal and a rural (agricultural). The informal sector produces a non-traded intermediate good for the formal sector while the other two sectors produce two internationally traded final commodities. The formal credit market that supplies capital to the formal sector is assumed to be competitive like Gupta (1997). However, we introduce imperfection in the informal credit market that supplies capital to the informal and rural sector producers. The informal lender is a price maker in the informal credit market. Also the two credit markets are not disintegrated and capital can flow from one market to the other because the informal lender obtains capital from the formal credit market. In Gupta (1997), the supply of capital to the informal sector is perfectly inelastic. Any inflow of foreign capital necessarily goes to the urban formal sector in Gupta (1997)6 while in the present model it may flow into both credit markets. In Gupta (1997), labour moves from the rural sector to the informal sector following the Harris and Todaro (1970) migration mechanism. However, in the present model, labour is perfectly mobile. The present analysis derives some interesting results that are new in the theoretical literature on informal credit market. An inflow of foreign capital, given the endowment of labour, unambiguously raises both the price of the informal sector's product and the informal interest rate but lowers the formal interest rate as well as the wage rate in the informal labour market. Similar results are obtained when an emigration of labour takes place given the capital endowment of the economy. So either the foreign capital inflow or the emigration of labour aggravates the extent of formal–informal wage gap as well as the interest rate gap between the two credit markets. So, degrees of distortions in both the factor markets are increased following inflows of foreign capital and/or emigration of labour. The paper is organized as follows. The model is described in Section 2. Subsection 2.1 analyzes the behaviour of the monopolistic lender who is the only source of capital in the informal credit market. Subsection 2.2 describes the equational structure of the general equilibrium model. Section 3 presents the comparative static effects with respect to changes in capital and labour endowments. Finally, concluding remarks are made in Section 4.

In this paper we have developed a three-sector static general equilibrium model of a small open economy with distortions in the labour market as well as in the capital market. The informal capital market is different from the formal capital market in the sense that the latter being competitive in nature supplies capital to the formal sector firms while the former being monopolistic in nature provides funds to the informal and rural sector producers. We, however, do not consider the Harris and Todaro (1970) type rural–urban migration and unemployment of labour. We obtain a few interesting results. If the intermediate good producing informal sector is more capital-intensive than the agricultural good producing informal sector, an increase in the capital stock and/or a decrease in labour endowment would lower the wage rate in the informal labour market as well as the interest rate in the formal credit market but raises the interest rate in the informal capital market. Thus degrees of distortion in both the factor markets are aggravated in this case. This result is different from that we obtain in Gupta (1997) model where an increase in the capital stock and/or a decrease in labour endowment raises the informal wage rate and lowers the interest rate in the informal credit market when there is Harris and Todaro (1970) type induced migration and the labour sending rural sector is more capital-intensive than the labour receiving urban informal sector. No unambiguous results on factor prices in the informal sector can be obtained in Gupta (1997) when the urban informal sector is more capital-intensive than the rural sector. Moreover, there is a major difference in the mechanism of working between these two models. In Gupta (1997), changes in factor endowments affect factor prices through the Harris–Todaro migration equilibrium condition, but in the present model, corresponding effects are generated through movement in the price of the non-traded good. Finally, there are some restrictive assumptions embodied in the present analysis. There is no induced migration and unemployment which are two salient features of an LDC. Also the labour input is homogeneous and there is no distinction between workers with respect to their skills. Also some of the essential characteristics of the informal credit market like interlinkages with other markets are missing. Besides, the informal credit market is fragmented oligopolistic in nature and there is a segment in the credit market where informal lenders compete with each other.20 Future research in this area should address these issues.