Sugata Marjit () (Department of Economics and Finance, City University of Hong Kong) Amit Biswas (Viswasharati University, india)
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 appears 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 sectior 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 informaility and corruption.
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Publisher Info
Paper provided by East Asian Bureau of Economic Research in its series Trade Working Papers with number
607.
Length: 31 pages Date of creation: Dec 2004 Date of revision: Handle: RePEc:eab:tradew:607
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Find related papers by JEL classification: F11 - International Economics - - Trade - - - Neoclassical Models of Trade H2 - Public Economics - - Taxation, Subsidies, and Revenue
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