A two-sector numerical general equilibrium model calibrated on Kenyan data is used to consider second-best tariff policy in an economy with a distorted market for urban-industrial labour and urban unemployment. The results illustrate the sensitivity of second-best policy to the way the administered urban wage is determined (whether it is fixed primarily in terms of food or the manufactured good), and to the degree of inter-sectoral mobility of capital. Efficiency gains from moving to a second-best policy are shown to be small in comparison with the gains from eliminating the wage distortion in the first place.

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Persistent URL dx.doi.org/10.1080/00220388608421989
Journal Journal of Development Studies
Blomqvist, Å. (1986). Simulating Commercial Policy in a Small, Open Dual Economy with Urban Unemployment: A General Equilibrium Approach. Journal of Development Studies, 22(2), 443–457. doi:10.1080/00220388608421989