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Lurking in the Cities: Urbanization and the Informal Economy

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  • Ceyhun Elgin
  • Cem Oyvat

Abstract

This study investigates the empirical relationship between the level of urbanization and size of the informal economy using cross-country datasets proxying GDP and employment shares of urban informal sector. Our estimation results indicate that there is an inverted-U relationship between informality and the level of urbanization. That is, the share of the informal sector grows in the early phases of urbanization due to several pull and push factors; however, it tends to fall in the latter phases. We also show that factors like level of taxes, trade openness, and institutional quality tend to affect the size of the informal economy.

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Paper provided by Bogazici University, Department of Economics in its series Working Papers with number 2013/10.

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Date of creation: Oct 2013
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Handle: RePEc:bou:wpaper:2013/10

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  1. Moser, Caroline O. N., 1978. "Informal sector or petty commodity production: Dualism or dependence in urban development?," World Development, Elsevier, vol. 6(9-10), pages 1041-1064.
  2. Tokman, Victor E., 1978. "An exploration into the nature of informal--formal sector relationships," World Development, Elsevier, vol. 6(9-10), pages 1065-1075.
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  8. Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June.
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  16. Ceyhun Elgin, 2010. "Political Turnover, Taxes and the Shadow Economy," Working Papers 2010/08, Bogazici University, Department of Economics.
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  21. Wuyts, Marc, 2001. "Informal Economy, Wage Goods and Accumulation under Structural Adjustment Theoretical Reflections Based on the Tanzanian Experience," Cambridge Journal of Economics, Oxford University Press, vol. 25(3), pages 417-38, May.
  22. Friedrich Schneider & Andreas Buehn & Claudio Montenegro, 2010. "New Estimates for the Shadow Economies all over the World," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 443-461.
  23. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July.
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