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Regulation, enforcement and informality: an analysis based on selected countries

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  • Roychowdhury, Punarjit
  • Dutta, Mousumi
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    Abstract

    The informal economy has been occupying a key position in the development-discourse ever since it was ‘discovered’ in the Ghana in the second half of the 20th century. A good deal of literature has grown up in the past forty years with efforts to ‘formalize’ the concept of informality and to integrate it with mainstream development economic theory. In particular, there is a strong controversy regarding the appropriate policy response to informality: Should it be left on its own or should the state intervene in the functioning of the informal sector? And, if the state needs to regulate the informal sector, what instruments of regulation can it possibly put to use? Based on the literature that has developed around these issues, the paper provides a formal econometric model of regulation and enforcement. Using secondary data collected for 46 countries from different sub-continents over the period between 1980 and 2008, this study explores the inter-relationship among regulation, enforcement and the level of informal employment for different countries across the world. The study establishes that regulation by itself has no role in reducing or aggravating the level of informality in an economy. Regulation will only affect levels of informality when it is enforced.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30818.

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    Date of creation: 09 May 2011
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    Handle: RePEc:pra:mprapa:30818

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    Keywords: Informal sector; Regulations; Panel data;

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    1. R. Hirschowitz, 1989. "The Other Path: The Invisible Revolution in the Third World," South African Journal of Economics, Economic Society of South Africa, vol. 57(4), pages 266-272, December.
    2. Blunch, Niels-Hugo & Canagarajah, Sudharshan & Raju, Dhushyanth, 2001. "The informal sector revisited : a synthesis across space and time," Social Protection Discussion Papers 23308, The World Bank.
    3. Bromley, Ray, 1978. "Introduction - the urban informal sector: Why is it worth discussing?," World Development, Elsevier, vol. 6(9-10), pages 1033-1039.
    4. Chen, Martha Alter, 2005. "Rethinking the Informal Economy: Linkages with the Formal Economy and the Formal Regulatory Environment," Working Paper Series RP2005/10, World Institute for Development Economic Research (UNU-WIDER).
    5. Marjit, Sugata & Kar, Saibal, 2011. "The Outsiders: Economic Reform and Informal Labour in a Developing Economy," OUP Catalogue, Oxford University Press, number 9780198071495.
    6. Moser, Caroline O. N., 1978. "Informal sector or petty commodity production: Dualism or dependence in urban development?," World Development, Elsevier, vol. 6(9-10), pages 1041-1064.
    7. Fields, Gary S., 1975. "Rural-urban migration, urban unemployment and underemployment, and job-search activity in LDCs," Journal of Development Economics, Elsevier, vol. 2(2), pages 165-187, June.
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