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Diverging Paths: Transition in the Presence of the Informal Sector

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Author Info
Maxim Bouev ()

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Abstract

This work suggests a development of the seminal model of transition from plan to market economy by Aghion and Blanchard (1994). We introduce an informal sector to show that its presence can generate qualitatively di?erent steady states, to which the economy converges in the end of transition. Two types of transitional dynamics are considered, and it is argued that they can help explain di?erences in evolution of formal and informal output exhibited, on the one hand, by East European countries and, on the other hand, by the former Soviet Union republics such as Russia or Ukraine.

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Paper provided by William Davidson Institute at the University of Michigan Stephen M. Ross Business School in its series William Davidson Institute Working Papers Series with number 2004-689.

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Length: 52 pages
Date of creation: 01 May 2004
Date of revision:
Handle: RePEc:wdi:papers:2004-689

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Related research
Keywords: optimal speed of transition; informal economy; search models;

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Find related papers by JEL classification:
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
P29 - Economic Systems - - Socialist Systems and Transition Economies - - - Other

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Maxim Bouev, 2005. "State Regulations, Job Search and Wage Bargaining: A Study in the Economics of the Informal Sector," William Davidson Institute Working Papers Series wp764, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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