This dissertation contributes to the literature in two ways. It explores the link between the trade liberalization policies and the informal sector wages, and examines the economy of the self-employed sector of India. Specifically, this dissertation (i) develops a general equilibrium model incorporating the self-employed sector as a separate informal sector and demonstrates the connection between the trade liberalization policies and the informal sector wages; (ii) presents a system analysis for the economy of the self-employed sector; (iii) highlights the distinctive characteristics of the self-employed sector and generates a better understanding of the difference between the self-employed and the wage-working sectors. There are a number of studies focusing on the impact of the changing policy environment in the developing countries on the informal sector. While most of them are in agreement that the size of the informal sector has grown post-trade reforms in the developing countries, there is still no consensus about the impact of the reforms on the terms of informal work, particularly the wages. The theoretical model developed in this dissertation shows that the current understanding changes significantly when the self-employed sector is incorporated into the analysis. The extent of self-employment plays a crucial role in determining the link between the trade liberalization policies and the informal sector wages. This model emphasizes that the growing self-employment and informalization of the formal sector workers in India can result in non-increasing informal sector wages. The analysis of the economic system of the self-employed sector generates important insights about the production relationships prevailing in this sector. A microcosm of self-employed occupations of India is developed and the occupations are categorized according to location, gender and types of products. The system of production is analyzed to find out the difference of this sector with other wage-working sectors. The extra-legal and extra-capitalist nature of production highlights the inadequacy of the abstract modeling in capturing the economic characteristics of this sector. The Kinship Associations build the informal institutions and determine the terms of input valuations. This dissertation also demonstrates the importance of maintaining the community ties in helping the productive capacity of the self-employed sector.
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