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Trade liberalization, production organization and informal sector of the developing countries

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  • Dibyendu Maiti
  • Sugata Marjit

Abstract

The paper provides an explanation of recent empirical evidence on fragmentation and the expansion of the informal sector in India. We argue that as the prospect of getting a better price in the international market increases, the producers in the formal sector act more like merchants and subcontract production activities to the producers in the informal sectors. Expanding production in the informal sector allows the firm to take advantage of a growing export market. Our theoretical model explains such organizational change in terms of allocation of monitoring effort between marketing and production. The existence of a low-wage informal sector facilitates division of labor and specialization in the formal segment.

Suggested Citation

  • Dibyendu Maiti & Sugata Marjit, 2008. "Trade liberalization, production organization and informal sector of the developing countries," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 17(3), pages 453-461.
    • Handle: RePEc:taf:jitecd:v:17:y:2008:i:3:p:453-461
    DOI: 10.1080/09638190802137125
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    References listed on IDEAS

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    1. Marjit, Sugata & Ghosh, Sudeep & Biswas, Amit, 2007. "Informality, corruption and trade reform," European Journal of Political Economy, Elsevier, vol. 23(3), pages 777-789, September.
    2. Dibyendu Maiti, 2008. "The organisational morphology of rural industries and its dynamics in liberalised India: a study of West Bengal," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 32(4), pages 577-591, July.
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    Cited by:

    1. Xiaofang Zhang, 2021. "The Effect of Trade Liberalization on Regional Employment Adjustment: Evidence from China," International Journal of Business and Management, Canadian Center of Science and Education, vol. 15(5), pages 193-193, July.
    2. Dibyendu S. Maiti & Arup Mitra, 2010. "Skills, Informality and Development," Working Papers id:3115, eSocialSciences.
    3. Beladi, Hamid & Mukherjee, Arijit, 2017. "Union bargaining power, subcontracting and innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 137(C), pages 90-104.
    4. Abbas Khandan & Masoud Nili, 2014. "Government interventions and the size of the informal economy. The case of Iran (1971-2007)," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 17(1), pages 71-90, March.
    5. Roychowdhury, Punarjit & Dutta, Mousumi, 2011. "Regulation, governance and informality: an empirical analysis of selected countries," MPRA Paper 33775, University Library of Munich, Germany.
    6. Dibyendu Maiti & Sugata Marjit, 2011. "Subcontracting, R&D And Labour Productivity: A Theoretical Explanation," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 36(3), pages 1-24, September.
    7. Sudeshna Mitra & Kausik Gupta, 2017. "Fragmentation, Skill Formation And International Capital Mobility," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(02), pages 335-350, March.
    8. Marjit, Sugata & Kar, Saibal & Chaudhuri, Sarbajit, 2011. "Recession in the skilled sector and implications for informal wage," Research in Economics, Elsevier, vol. 65(3), pages 158-163, September.

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