Informality Traps
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.
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| Format: | Journal Article biblioteca |
| Language: | EN |
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2008
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| Subjects: | Informal Economy, Underground Economy E260, Economics of Regulation L510, Formal and Informal Sectors, Shadow Economy, Institutional Arrangements O170, |
| Online Access: | http://hdl.handle.net/10986/4744 |
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dig-okr-1098647442021-04-23T14:02:19Z Informality Traps Masatlioglu, Yusufcan Rigolini, Jamele Informal Economy Underground Economy E260 Economics of Regulation L510 Formal and Informal Sectors Shadow Economy Institutional Arrangements O170 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. 2012-03-30T07:29:31Z 2012-03-30T07:29:31Z 2008 Journal Article B.E. Journal of Economic Analysis and Policy: Contributions to Economic Analysis and Policy 19351682 http://hdl.handle.net/10986/4744 EN http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Journal Article |
| institution |
Banco Mundial |
| collection |
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| country |
Estados Unidos |
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US |
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Bibliográfico |
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dig-okr |
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biblioteca |
| region |
America del Norte |
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Biblioteca del Banco Mundial |
| language |
EN |
| topic |
Informal Economy Underground Economy E260 Economics of Regulation L510 Formal and Informal Sectors Shadow Economy Institutional Arrangements O170 Informal Economy Underground Economy E260 Economics of Regulation L510 Formal and Informal Sectors Shadow Economy Institutional Arrangements O170 |
| spellingShingle |
Informal Economy Underground Economy E260 Economics of Regulation L510 Formal and Informal Sectors Shadow Economy Institutional Arrangements O170 Informal Economy Underground Economy E260 Economics of Regulation L510 Formal and Informal Sectors Shadow Economy Institutional Arrangements O170 Masatlioglu, Yusufcan Rigolini, Jamele Informality Traps |
| description |
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. |
| format |
Journal Article |
| topic_facet |
Informal Economy Underground Economy E260 Economics of Regulation L510 Formal and Informal Sectors Shadow Economy Institutional Arrangements O170 |
| author |
Masatlioglu, Yusufcan Rigolini, Jamele |
| author_facet |
Masatlioglu, Yusufcan Rigolini, Jamele |
| author_sort |
Masatlioglu, Yusufcan |
| title |
Informality Traps |
| title_short |
Informality Traps |
| title_full |
Informality Traps |
| title_fullStr |
Informality Traps |
| title_full_unstemmed |
Informality Traps |
| title_sort |
informality traps |
| publishDate |
2008 |
| url |
http://hdl.handle.net/10986/4744 |
| work_keys_str_mv |
AT masatliogluyusufcan informalitytraps AT rigolinijamele informalitytraps |
| _version_ |
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