Informal Sector, Income Inequality and Economic Development
AbstractThis paper addresses - with the help of numerical simulation - some of the issues relating to income distribution in the context of development of an economy with an informal sector and migration of both low and high skilled workers from the rural to the urban area. A major aim has been to see under what conditions we do or do not get an inverted U-shaped curve of income distribution. The paper finds that the tendency always is for the Gini coefficient to rise and then decline. However, once it starts declining, it need not continuously decline; it may rise, then decline, then rise again and indeed rise above the previous peak before starting to decline again and may well end at the end of the simulation at a higher value than at the start. Any case for the redistribution of income is seen to be much stronger at later stages of development that at earlier stages, even though at later stages, Gini coefficient may be lower than at earlier stages. The policy implications of the findings are briefly considered.
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Bibliographic InfoPaper provided by Centre for Economic Reform and Transformation, Heriot Watt University in its series CERT Discussion Papers with number 0709.
Date of creation: 2007
Date of revision:
income inequality; Kuznets curve; informal sector; simulation;
Find related papers by JEL classification:
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
- E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-09-16 (All new papers)
- NEP-DEV-2007-09-16 (Development)
- NEP-MAC-2007-09-16 (Macroeconomics)
- NEP-MIG-2007-09-16 (Economics of Human Migration)
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- Bhattacharya, Prabir C., 2011. "Informal sector, income inequality and economic development," Economic Modelling, Elsevier, vol. 28(3), pages 820-830, May.
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