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Informality Traps

  • Yusufcan Masatlioglu und Jamele Rigolini
Veröffentlicht/Copyright: 17. Dezember 2008
The B.E. Journal of Economic Analysis & Policy
Aus der Zeitschrift The B.E. Journal of Economic Analysis & Policy Band 8 Heft 1

Abstract

Despite large deregulation efforts, informal economic activity still represents a large share of GDP in many developing countries. In this paper we look at incentives to reduce informal activity when capitalists in the formal sector regulate entry. We consider a dual economy with a formal sector employing educated workers and an informal sector with unskilled workers. We show that high costs of education make labor migration and profits in the formal sector an increasing function of its size. Therefore, incentives to allow capital to be reallocated to the formal sector increase with the size of the formal economy, and unless the formal sector has reached a "critical mass" countries remain in a highly informal equilibrium. We conclude by reviewing policies that can push countries with large informal economies towards formalization.

Keywords: informal sector; traps; two-sector economy
Published Online: 2008-12-17

©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston

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https://doi.org/10.2202/1935-1682.2055
Schlagwörter für diesen Artikel
informal sector; traps; two-sector economy

Artikel in diesem Heft

  1. Frontiers Article
  2. The Causal Effect of Studying on Academic Performance
  3. The Market: Catalyst for Rationality and Filter of Irrationality
  4. Advances Article
  5. Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs
  6. Risk Attitude in Real Decision Problems
  7. The Effect of FDI on Job Security
  8. On the Optimal Allocation of Students and Resources in a System of Higher Education
  9. Giving It Away for Free? The Nature of Job-Market Signaling by Open-Source Software Developers
  10. Coping with Disaster: The Impact of Hurricanes on International Financial Flows, 1970-2002
  11. Lucky Last? Intra-Sibling Allocation of Child Labor
  12. Technological Proximity and Exclusive Buyer-Supplier Relationships
  13. The Internet and the Market for Daily Newspapers
  14. Optimal Policy with Heterogeneous Preferences
  15. A Representation Index: Measuring the Representation of Minorities in the Income Distribution
  16. Starting School at Four: The Effect of Universal Pre-Kindergarten on Children's Academic Achievement
  17. Contributions Article
  18. The Economics of Workaholism: We Should Not Have Worked on This Paper
  19. Millers, Commission Agents and Collusion in Grain Markets: Evidence from Basmati Auctions in North India
  20. Resources for Sale: Corruption, Democracy and the Natural Resource Curse
  21. Partners in Crime: Collusive Corruption and Search
  22. An Empirical Study of Happiness in Italy
  23. Fairness in Extended Dictator Game Experiments
  24. Income Insecurity and Youth Emancipation: A Theoretical Approach
  25. Pay Peanuts and Get Monkeys? Evidence from Academia
  26. Entry and Exit in the Nonprofit Sector
  27. Discrimination as a Competitive Device: The Case of Local Television News
  28. Predicting Resource Policy Outcomes via Meta-Regression: Data Space, Model Space, and the Quest for 'Optimal Scope'
  29. Functional Distribution, Land Ownership and Industrial Takeoff: The Role of Effective Demand
  30. Growth and Inequality in Closed and Open Economies: The Role of the Product Cycle
  31. Before and After: Gender Transitions, Human Capital, and Workplace Experiences
  32. Love on the Rocks: Domestic Violence and Alcohol Abuse in Rural Mexico
  33. Entrepreneurial First Movers, Brand-Name Fast Seconds, and the Evolution of Market Structure
  34. Crossing the Line: Direct Estimation of Cross-Border Cigarette Sales and the Effect on Tax Revenue
  35. Corruption and Openness
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  37. Topics Article
  38. Conflict and Production: An Application to Natural Resources
  39. Strategic Behavior and Social Norms in Tipped Service Industries
  40. Trade Liberalization and New Exporters' Size: A Test of Heterogeneous Firm Models
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  42. Determinants of Business Tax Compliance
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  44. Effects of Electoral Rules, Political Competition and Corruption on the Size and Composition of Government Consumption Spending: An Italian Regional Analysis
  45. Too Few Cooks Spoil the Broth: Division of Labor and Directed Production
  46. The Employment Effects of Mergers in a Declining Industry: The Case of South African Gold Mining
  47. Environmental Policy and Uncertain Arrival of Future Abatement Technology
  48. Political Altruism of Transboundary Water Sharing
  49. Equilibrium State Aid in Integrating Markets
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  51. Dynamic Scoring in the Ramsey Growth Model
  52. Lobbying and Contract Delegation in Public Procurement
  53. Measuring Hypothetical Bias in Choice Experiments: The Importance of Cognitive Consistency
  54. The Effect of Trade Facilitation on Sectoral Trade
  55. After-School Supervision and Children's Cognitive Achievement
  56. Does Crime Affect Economic Decisions? An Empirical Investigation of Savings in a High-Crime Environment
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