Regulation, governance and informality: an empirical analysis of selected countries
AbstractThe Informal Economy provides employment to more than 60 per cent of the labour population in the developing world despite being a site unfettered by regulations and social norms of fairness governing pay and work conditions. In assessing the factors behind an informal agent’s decision to formalize, it is asserted that rigidity in regulatory mechanism is the primary cause that impedes the process of formalization. However whether flexible regulations can encourage formalization by making gains of formalization more accessible and certain remains a question. In this paper we argue that flexible regulations does not necessarily manifest into the incentives that are essential for formalization. Reducing rigidities in regulation has a significant pay off only in the ambit of good governance. More specifically we hypothesise that degree of intensity of regulation will hardly matter in containing informality; rather what matters is the quality of governance and capability of the institutions to put the regulations into effect. Using secondary data for 46 countries over the period between 1980 and 2008, we empirically investigate into the linkages between governance, regulation and informal employment by developing static and dynamic panel data models and establish that in curbing informality what turns out to be crucial is the interaction between quality of governance and regulation.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 33775.
Date of creation: 27 Sep 2011
Date of revision:
Formalization; Governance; Informal Economy; Panel data; Regulation;
Find related papers by JEL classification:
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
- O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-09 (All new papers)
- NEP-HME-2011-10-09 (Heterodox Microeconomics)
- NEP-IUE-2011-10-09 (Informal & Underground Economics)
- NEP-REG-2011-10-09 (Regulation)
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