Despite large deregulation efforts, informal economic activity still represents a large share of GDP in many developing countries. In this paper we look at incentives to reduce informal activity when capitalists in the formal sector regulate entry. We consider a dual economy with a formal sector employing educated workers and an informal sector with unskilled workers. We show that high costs of education make labor migration and profits in the formal sector an increasing function of its size. Therefore, incentives to allow capital to be reallocated to the formal sector increase with the size of the formal economy, and unless the formal sector has reached a "critical mass" countries remain in a highly informal equilibrium. We conclude by reviewing policies that can push countries with large informal economies towards formalization.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 8 (2008)
Issue (Month): 1 (December)
|Contact details of provider:|| Web page: https://www.degruyter.com|
|Order Information:||Web: https://www.degruyter.com/view/j/bejeap|
References listed on IDEAS
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.:
- Eduardo Fern·ndez-Arias & Peter Montiel, 2001.
"Reform and Growth in Latin America: All Pain, No Gain?,"
IMF Staff Papers,
Palgrave Macmillan, vol. 48(3), pages 1-5.
- Fernandez-Arias, Eduardo & Montiel, Peter, 1997. "Reform and Growth in Latin America: All Pain, No Gain?," Working Papers 244236, Inter-American Development Bank.
- Eduardo Fernández-Arias & Peter Montiel, 2001. "Reform and Growth in Latin America: All Pain, No Gain?," Center for Development Economics 166, Department of Economics, Williams College.
- Eduardo Fernández-Arias & Peter Montiel, 1997. "Reform and Growth in Latin America: All Pain, No Gain?," Research Department Publications 4078, Inter-American Development Bank, Research Department.
- Eduardo FernÃ¡ndez-Arias & Peter Montiel, 2002. "Reform and Growth in Latin America: All Pain, No Gain?," Department of Economics Working Papers 2001-06, Department of Economics, Williams College.
- Peter J. Montiel & Eduardo Fernández-Arias, 1997. "Reform and Growth in Latin America: all Pain, no Gain?," IDB Publications (Working Papers) 6801, Inter-American Development Bank.
- Saint-Paul, Gilles, 2000. "The Political Economy of Labour Market Institutions," OUP Catalogue, Oxford University Press, number 9780198293323, April. Full references (including those not matched with items on IDEAS)