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The causes and consequences of informality in Peru

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  • Norman Loayza

    ()
    (The World Bank)

Abstract

Adopting 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 Info

Paper provided by Banco Central de Reserva del Perú in its series Working Papers with number 2007-018.

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Date of creation: Dec 2007
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Handle: RePEc:rbp:wpaper:2007-018

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Related research

Keywords: Regulation; government performance; economic growth; informal economy;

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  1. Guillermo E. Perry & William F. Maloney & Omar S. Arias & Pablo Fajnzylber & Andrew D. Mason & Jaime Saavedra-Chanduvi, 2007. "Informality : Exit and Exclusion," World Bank Publications, The World Bank, number 6730, October.
  2. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment Updates and Implications," NBER Working Papers 7911, National Bureau of Economic Research, Inc.
  3. Loayza, Norman A., 1997. "The economics of the informal sector : a simple model and some empirical evidence from Latin America," Policy Research Working Paper Series 1727, The World Bank.
  4. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
  5. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July.
  6. Klarita G�rxhani, 2004. "The Informal Sector in Developed and Less Developed Countries: A Literature Survey," Public Choice, Springer, vol. 120(3_4), pages 267-300, 09.
  7. Loayza, Norman V. & Rigolini, Jamele, 2006. "Informality trends and cycles," Policy Research Working Paper Series 4078, The World Bank.
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