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Characteristics of India's Informal and Formal Trading with Nepal: A Comparative Analysis

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Author Info

  • Nisha Taneja

    (ICRIER, Core 6A, 4th floor, India Habitat Centre, Lodhi Road, New Delhi-110003, India)

  • Sanjib Pohit

    (National Council of Applied Economic Research, Parisila Bhawan, 11 IP Estate, New Delhi-110002, India)

Abstract

The large and vibrant informal trade between India and Nepal continues to thrive despite trade liberalization in the two countries. This calls for an in-depth analysis of India's informal trade with Nepal. The analysis, carried out on the basis of an extensive survey conducted in India and Nepal reveals that informal traders in India and Nepal have developed efficient mechanism for contract enforcement, information flows, risk sharing and risk mitigation. Further, informal traders prefer to trade through the informal channel because the transaction costs of trading in the informal channel are significantly lower implying that informal trade takes due to the inefficient institutional set up in the formal channel.

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Bibliographic Info

Article provided by Department of Economics, Delhi School of Economics in its journal Indian Economic Review.

Volume (Year): 37 (2002)
Issue (Month): 1 (January)
Pages: 69-89

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Handle: RePEc:dse:indecr:v:37:y:2002:i:1:p:69-89

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Keywords: Trade; Transaction cost; Institutional Arrangements;

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