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Informal Sector and Corruption: An Empirical Investigation for India

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Author Info

  • Dutta, Nabamita

    ()
    (University of Wisconsin, La Crosse)

  • Kar, Saibal

    ()
    (Centre for Studies in Social Sciences, Calcutta)

  • Roy, Sanjukta

    ()
    (World Bank)

Abstract

India is a country characterized by a huge informal sector. At the same time, it is a country where the extent of corruption in every sector is remarkably high. Stifling bureaucratic interference and corruption at every stage of economic activities is one of the main reasons behind high participation in informal and unregulated sectors. For economies characterized by high inequality and poverty, a useful tool for the government to pacify social unrest, is to choose a lower level of governance allowing substantial corruption in the system. Based on a study of 20 Indian states, we empirically show that higher corruption increases level of employment in the informal sector. Further, our analysis also shows that for higher levels of lagged state domestic product, the positive impact of corruption on the size of the informal sector is nullified.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5579.

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Length: 35 pages
Date of creation: Mar 2011
Date of revision:
Publication status: published as: Corruption and Persistent Informality: An Empirical Investigation for Indian States, International Review of Economics and Finance, 27, 357–373, 2013.
Handle: RePEc:iza:izadps:dp5579

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Keywords: informal sector; corruption; state domestic product; governance; India;

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References

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  1. International Monetary Fund, 1997. "Corruption and the Rate of Temptation," IMF Working Papers 97/73, International Monetary Fund.
  2. Marjit, Sugata & Mukherjee, Vivekananda & Mukherjee, Arijit, 2000. "Harassment, corruption and tax policy," European Journal of Political Economy, Elsevier, vol. 16(1), pages 75-94, March.
  3. Aureo de Paula & Jose A Sheinkman, 2007. "The Informal Sector," Levine's Bibliography 122247000000001663, UCLA Department of Economics.
  4. Saha, Bibhas, 2001. "Red tape, incentive bribe and the provision of subsidy," Journal of Development Economics, Elsevier, vol. 65(1), pages 113-133, June.
  5. Marjit, Sugata & Rajeev, Meenakshi & Mukherjee, Diganta, 2000. "Incomplete information as a deterrent to crime," European Journal of Political Economy, Elsevier, vol. 16(4), pages 763-773, November.
  6. Brunetti, Aymo & Weder, Beatrice, 2003. "A free press is bad news for corruption," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1801-1824, August.
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Cited by:
  1. 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, vol. 6(4), pages 36-55, March.
  2. Professor Bahaudin G. Mujtaba, 2012. "Bribery Challenges And Business Ethics In Afghanistan," Far East Journal of Psychology and Business, Far East Research Centre, vol. 6(4), pages 58-76, February.
  3. Kar, Saibal & Saha, Shrabani, 2012. "Corruption, Shadow Economy and Income Inequality: Evidence from Asia," IZA Discussion Papers 7106, Institute for the Study of Labor (IZA).
  4. 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, vol. 7(4), pages 52-65, May.
  5. Mukim, Megha, 2013. "Coagglomeration of formal and informal industry : evidence from India," Policy Research Working Paper Series 6622, The World Bank.

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