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A Classical Theory of the Informal Sector

Author

Listed:
  • Gibson, Bill
  • Kelley, Bruce

Abstract

A major focus of the debate on the informal sector is whether this sector constitutes a 'seedbed of capitalist growth' or simply a reserve army of unemployed. This paper develops a classical model where informal processes may or may not turn formal in the long run. It is further shown that if the state taxes capitalists in order to maintain informal sector incomes, the surplus is likely to fall as formal sector output grows. Thus, the authors conclude that while the informal sector does not necessarily lead to capitalist development, it may serve as a social buffer in its absence. Copyright 1994 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • Gibson, Bill & Kelley, Bruce, 1994. "A Classical Theory of the Informal Sector," The Manchester School of Economic & Social Studies, University of Manchester, vol. 62(1), pages 81-96, March.
    • Handle: RePEc:bla:manch2:v:62:y:1994:i:1:p:81-96
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    Citations

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    Cited by:

    1. Nicoletta Batini & Young-Bae Kim & Paul Levine & Emanuela Lotti, 2009. "Informal Labour and Credit Markets: A Survey," School of Economics Discussion Papers 0609, School of Economics, University of Surrey.
    2. Albu, Lucian-Liviu, 2007. "A model to estimate informal economy at regional level: Theoretical and empirical investigation," MPRA Paper 3760, University Library of Munich, Germany.
    3. Kendall K. Schaefer, 2003. "Capacity Utilization, Income Distribution, and the Urban Informal Sector: An Open-Economy Model," Working Papers wp35, Political Economy Research Institute, University of Massachusetts at Amherst.
    4. Amponsah, Mary & Agbola, Frank W. & Mahmood, Amir, 2021. "The impact of informality on inclusive growth in Sub-Saharan Africa: Does financial inclusion matter?," Journal of Policy Modeling, Elsevier, vol. 43(6), pages 1259-1286.
    5. Bill Gibson, 2012. "Trade, Employment and the Informal Sector: An Agent-based Analysis," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 6(2), pages 277-310, May.
    6. Mehak Majeed & Saeed Owais Mushtaq & Zahid Gulzar Rather, 2022. "The Complementarity Between the Formal and Informal Sub-sectors of the Indian Industry," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 65(4), pages 981-1006, December.
    7. Gibson, Bill, 2005. "The transition to a globalized economy: Poverty, human capital and the informal sector in a structuralist CGE model," Journal of Development Economics, Elsevier, vol. 78(1), pages 60-94, October.
    8. Albu, Lucian-Liviu, 2003. "Underground economy modelling: simple models with complicated dynamics," MPRA Paper 12447, University Library of Munich, Germany.
    9. Paraskevi Koufopoulou & Colin C. Williams & Athanassios Vozikis & Kyriakos Souliotis, 2019. "Shadow Economy: Definitions, terms & theoretical considerations," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 9(5), pages 1-3.
    10. Tugba Somuncu & Christopher Hannum, 2018. "The Rebound Effect of Energy Efficiency Policy in the Presence of Energy Theft," Energies, MDPI, vol. 11(12), pages 1-28, December.
    11. Bill Gibson & Diane Flaherty, 2016. "Juridical and Functional Informality: From Theory to Practical Policy," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 10(4), pages 409-445, November.
    12. Anushree Sinha, 2010. "Productivity of Indian Informal Workers," Journal of South Asian Development, , vol. 5(1), pages 15-52, April.
    13. Albu, Lucian-Liviu & Nicolae, Mariana, 2003. "Use of households survey data to estimate the size of the informal economy in Romania," MPRA Paper 14286, University Library of Munich, Germany.
    14. Takao FUKUCHI, 1998. "A Simulation Analysis Of The Urban Informal Sector," The Developing Economies, Institute of Developing Economies, vol. 36(3), pages 225-256, September.

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