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http://hdl.handle.net/10419/46179
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| Title: | | Economic reform, informal-formal sector linkages and intervention in the informal sector in developing countries: A paradox  |
| Authors: | | Arvin-Rad, Hassan Basu, Arnab K. Willumsen, Maria |
| Issue Date: | | 2010 |
| Series/Report no.: | | Discussion paper series // Forschungsinstitut zur Zukunft der Arbeit 5229 |
| Abstract: | | Within a general equilibrium framework of a developing economy with a foreign owned factor of production, this paper questions whether the informal-formal sector relationship is procyclical/ complementary - expansion or contraction in one necessarily implies an expansion or contraction in the other - when the informal sector is subject to a technological shock. We derive a necessary and sufficient condition under which a positive shock to the informal sector results in a contraction in both the size of the urban formal sector and the informal sector. Thus, although our result shows that the informal-formal sector relationship is procyclical, it nevertheless calls into question the conventional wisdom on the benefits of intervention in the informal sector of developing economies, particularly where multinational corporations sub-contract certain labor intensive stages of production to the informal sector. |
| Subjects: | | rural-urban migration urban informal sector technological change |
| JEL: | | J8 R13 R23 |
| Document Type: | | Working Paper |
| Appears in Collections: | | IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)
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