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Informal Labour and Credit Markets: A Survey

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  • Paul Levine
  • Emanuela Lotti
  • Nicoletta Batini
  • Young-Bae Kim

Abstract

This paper reviews the literature on the informal economy, focusing first on empirical findings and then on existing approaches to modeling informality within both partial and general equilibrium environments. We concentrate on labour and credit markets, since these tend to be most affected by informality. The phenomenon is particularly important in emerging and other developing economies, given their high degrees of informal labour and financial services and the implications these have for the effectiveness of macroeconomic policy. We emphasize the need for dynamic general equilibrium (DGE) and ultimately dynamic stochastic general equilibrium (DSGE) models for a full understanding of the costs, benefits and policy implications of informality. The survey shows that the literature on informality is quite patchy, and that there are several unexplored areas left for research.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/42.

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Length: 41
Date of creation: 01 Feb 2010
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Handle: RePEc:imf:imfwpa:10/42

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Keywords: Access to capital markets; Credit; Developing countries; Economic models; Emerging markets; Labor markets; informal sector; labour; labour market; labour markets; jobs; moral hazard; informal labour markets; adverse selection; imperfect information; informal labour market; labor market; labour market regulations; job destruction; job creation; job search; labour market regulation; macroeconomic policy; bargaining power; informal labor markets; labour supply; job separation; labour force; market institutions; cost of capital; labour force participation; economies of scale; labour contracts; income households; labor office; dysfunctional crowding; competitive markets; labour market participation; labor market institutions; job offers; capital intensity; informal labor market; marginal costs; labour policies; labor market reforms; moral hazard problems; crowding; insurance markets; formal labour market; labor migration; labour turnover;

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Cited by:
  1. Nicoletta Batini & Paul Levine & Emanuela Lotti, 2011. "The Costs and Benefits of Informality," School of Economics Discussion Papers, School of Economics, University of Surrey 0211, School of Economics, University of Surrey.
  2. Paul Levine, 2010. "Monetary Policy in an Uncertain World : Probability Models and the Design of Robust Monetary Rules," Macroeconomics Working Papers 21853, East Asian Bureau of Economic Research.
  3. Paul Castillo B. & Carlos Montoro Ll., 2012. "Inflation Dynamics in the Presence of Informal Labour Markets," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, Central Bank of Chile, vol. 15(1), pages 4-31, April.
  4. Batini, Nicoletta & Levine, Paul & Lotti, Emanuela & Yang, Bo, 2011. "Monetary and Fiscal Policy in the Presence of Informal Labour Markets," Working Papers, National Institute of Public Finance and Policy 11/97, National Institute of Public Finance and Policy.
  5. Gabriel, Vasco & Levine, Paul & Pearlman, Joseph & Yang, Bo, 2011. "An Estimated DSGE Model of the Indian Economy," Working Papers, National Institute of Public Finance and Policy 11/95, National Institute of Public Finance and Policy.
  6. Haider, Adnan & Din, Musleh-ud & Ghani, Ejaz, 2012. "Monetary policy, informality and business cycle fluctuations in a developing economy vulnerable to external shocks," MPRA Paper 42484, University Library of Munich, Germany.
  7. Bouwe R. Dijkstra, 2011. "Good and Bad Equilibria with the Informal Sector," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 167(4), pages 668-685, December.
  8. Nicoletta Batini & Paul Levine & Emanuela Lotti & Bo Yang, 2011. "Informality, Frictions and Monetary Policy," School of Economics Discussion Papers, School of Economics, University of Surrey 0711, School of Economics, University of Surrey.

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