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Informality, Corruption and Trade Reform

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  • Sugata Marjit

    (City University of Hong Kong)

  • Amit K. Biswas

Abstract

Stringent regulations coupled with corruption generate and sustain extra legal or informal transactions in the developing countries. Does trade related reform discourage informal activities and corruption? This paper attempts to analyze such a phenomenon. An import competing firm allocates production between a high wage formal and a low wage informal segment. Illegal use of labour in the informal sector is characterized by a probability of punishment which depends on the size of the informal output. In such a structure, as tariff comes down, total employment contracts but the informal sector expands. However, lowering of interest rate, possibly through the liberalization of capital account, tends to reduce the size of the informal segment. Hence, trade reforms may have conflicting impact on informality and corruption.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Trade Working Papers with number 22896.

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Date of creation: May 2011
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Handle: RePEc:eab:tradew:22896

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Keywords: Trade Liberalization; Informal sector; corruption;

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References

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  1. Kar, Saibal & Marjit, Sugata, 2001. "Informal sector in general equilibrium: welfare effects of trade policy reforms," International Review of Economics & Finance, Elsevier, Elsevier, vol. 10(3), pages 289-300, July.
  2. Steven M. Fazzari & Bruce C. Petersen, 1993. "Working Capital and Fixed Investment: New Evidence on Financing Constraints," RAND Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 24(3), pages 328-342, Autumn.
  3. Dessy, Sylvain & Pallage, Stephane, 2003. "Taxes, inequality and the size of the informal sector," Journal of Development Economics, Elsevier, Elsevier, vol. 70(1), pages 225-233, February.
  4. Marjit, Sugata, 2003. "Economic reform and informal wage--a general equilibrium analysis," Journal of Development Economics, Elsevier, Elsevier, vol. 72(1), pages 371-378, October.
  5. Gupta, Manash Ranjan & Chaudhuri, Sarbajit, 1997. "Formal Credit, Corruption and the Informal Credit Market in Agriculture: A Theoretical Analysis," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 64(254), pages 331-43, May.
  6. Carruth, Alan A. & Oswald, Andrew J., 1981. "The determination of union and non-union wage rates," European Economic Review, Elsevier, Elsevier, vol. 16(2), pages 285-302.
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Citations

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Cited by:
  1. Sugata Marjit & Saibal Kar, 2012. "Firm Heterogeneity, Informal Wage and Good Governance," Review of Development Economics, Wiley Blackwell, Wiley Blackwell, vol. 16(4), pages 527-539, November.
  2. Professor Hafiz Abdur Rashid & Hafsa Noreen & Monazza Karamat, 2012. "Growth And Prospects Of Islamic Banking In Pakistan," Far East Journal of Psychology and Business, Far East Research Centre, Far East Research Centre, vol. 7(4), pages 52-65, May.
  3. Mukhiddin Jumaev & Prof. Dr. Dileep Kumar. M. & Jalal R. M. Hanaysha, 2012. "Impact Of Relationship Marketing On Customer Loyalty In The Banking Sector," Far East Journal of Psychology and Business, Far East Research Centre, Far East Research Centre, vol. 6(4), pages 36-55, March.
  4. Chaudhuri, Sarbajit & Mandal, Biswajit, 2012. "Bureaucratic reform, informal sector and welfare," MPRA Paper, University Library of Munich, Germany 36072, University Library of Munich, Germany.
  5. Mandal, Biswajit & Marjit, Sugata, 2010. "Corruption and wage inequality?," International Review of Economics & Finance, Elsevier, Elsevier, vol. 19(1), pages 166-172, January.
  6. Dibyendu Maiti & Arup Mitra, 2010. "Skills, Informality, and Development," Labor Economics Working Papers, East Asian Bureau of Economic Research 23037, East Asian Bureau of Economic Research.
  7. Dutta, Nabamita & Kar, Saibal & Roy, Sanjukta, 2013. "Corruption and persistent informality: An empirical investigation for India," International Review of Economics & Finance, Elsevier, Elsevier, vol. 27(C), pages 357-373.
  8. Marjit, Sugata & Kar, Saibal, 2007. "Labor productivity growth, informal wage and capital mobility: A general equilibrium analysis," MPRA Paper, University Library of Munich, Germany 23912, University Library of Munich, Germany, revised 2008.
  9. Kar, Saibal & Saha, Shrabani, 2012. "Corruption, Shadow Economy and Income Inequality: Evidence from Asia," IZA Discussion Papers, Institute for the Study of Labor (IZA) 7106, Institute for the Study of Labor (IZA).
  10. Professor Bahaudin G. Mujtaba, 2012. "Bribery Challenges And Business Ethics In Afghanistan," Far East Journal of Psychology and Business, Far East Research Centre, Far East Research Centre, vol. 6(4), pages 58-76, February.
  11. Marjit, Sugata & Mandal, Biswajit, 2010. "Extortion and Informal Sector in a Small Open Economy," MPRA Paper, University Library of Munich, Germany 25044, University Library of Munich, Germany.
  12. Pi, Jiancai & Zhou, Yu, 2013. "Institutional quality and skilled–unskilled wage inequality," Economic Modelling, Elsevier, Elsevier, vol. 35(C), pages 356-363.
  13. Sugata Marjit & Biswajit Mandal, . "Corruption and Trade in General Equilibrium," Discussion Papers, University of Nottingham, GEP 08/15, University of Nottingham, GEP.
  14. Marjit, Sugata & Maiti, Dibyendu S., 2005. "Globalization, Reform and the Informal Sector," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2005/12, World Institute for Development Economic Research (UNU-WIDER).

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