The causes and consequences of informality in Peru
AbstractAdopting a legal definition of informality, this article studies the causes of informality in general and with a particular application to Peru. It starts with a discussion on the definition and measures of informality, as well as on the reasons why widespread informality should be of great concern. Then, the article analyzes informality’s main determinants, arguing that informality is not single-caused but results from the combination of poor public services, a burdensome regulatory regime, and weak monitoring and enforcement capacity by the state. This combination is especially explosive when the country suffers from low educational achievement and features demographic pressures and primary production structures. Finally, using cross-country regression analysis, the article evaluates the empirical relevance of each determinant of informality. It then applies the estimated relationships to the case of Peru in order to assess the country-specific relevance of each proposed mechanism.
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Bibliographic InfoPaper provided by Banco Central de Reserva del Perú in its series Working Papers with number 2007-018.
Date of creation: Dec 2007
Date of revision:
Regulation; government performance; economic growth; informal economy;
Find related papers by JEL classification:
- K20 - Law and Economics - - Regulation and Business Law - - - General
- K30 - Law and Economics - - Other Substantive Areas of Law - - - General
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-01-19 (All new papers)
- NEP-DEV-2008-01-19 (Development)
- NEP-LAM-2008-01-19 (Central & South America)
- NEP-LAW-2008-01-19 (Law & Economics)
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