PRIVATIZATION OF PUBLIC FIRMS AND URBAN UNEMPLOYMENT IN AN INTEGRATED ECONOMY

Abstract

This paper presents analysis of the effect on urban employment of public firm privatization in separate countries. We consider an economy consisting of two goods and two countries, and take account of a mixed duopoly in the manufacturing goods sector in the urban area of each country. We extend the Harris and Todaro model by introducing a mixed oligopoly model. Results of this analysis show that the privatization of public firms in the home country engenders improvement of urban unemployment in the home country. However, the progressive privatization of public firms in the foreign country can worsen urban unemployment in the home country.