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The Relative Performance of Formal and Informal Sectors in India

In: Efficiency and Input-Output Analyses Theory and Applications

Author

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  • Amarendra Sahoo
  • Thijs ten Raa

Abstract

We evaluate the relative performance of formal and informal sectors in India by looking into their productivity difference. Recognizing the intersectoral linkages in the economy, the competitive general equilibrium prices are computed; these signal the productivities. Our model synthesizes frontier analysis with the general equilibrium approach to generate shadow prices. The formal activities are found to be more productive than the informal. However, the informal services sector is as efficient as the formal one. There would be an overall productivity gain of 22% to the economy if factors were allocated to productive activities. The shadow prices from the model indicate that the formal capital and informal capital are scarce factors, while it has been the opposite for formal (regular) and informal (casual) labor. Formal labor is more productive than its informal counterpart; formal capital and informal capital are equally productive.

Suggested Citation

  • Amarendra Sahoo & Thijs ten Raa, 2021. "The Relative Performance of Formal and Informal Sectors in India," World Scientific Book Chapters, in: Efficiency and Input-Output Analyses Theory and Applications, chapter 14, pages 225-242, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811233296_0014
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    Cited by:

    1. Mitoma, Haruka, 2023. "Carbon footprint analysis considering production activities of informal sector: The case of manufacturing industries of India," Energy Economics, Elsevier, vol. 125(C).
    2. Nakabayashi, Masaki, 2019. "From family security to the welfare state: Path dependency of social security on the difference in legal origins," Economic Modelling, Elsevier, vol. 82(C), pages 280-293.
    3. Purva Khera, 2016. "Macroeconomic Impacts of Gender Inequality and Informality in India," IMF Working Papers 2016/016, International Monetary Fund.
    4. Purva Khera, 2018. "Closing Gender Gaps in India: Does Increasing Womens’ Access to Finance Help?," IMF Working Papers 2018/212, International Monetary Fund.

    More about this item

    Keywords

    Efficiency; Input-Output; Benchmarking; Performance Measurement; TFP; Environmental Policy Analysis; Mark-ups; Consumer Surplus; CES Demand; Linkages; Heckscher-Ohlin Trade Flows; Leontief;
    All these keywords.

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • D - Microeconomics

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