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Does Informality Hold the Key to Growth and Stability?

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  • Meghna Dutta

Abstract

This paper attempts to analyse the impact of a prevailing informal sector on the dynamics of growth and inflation in developing economies. The high growth rates posited by most developing economies in the presence of a huge informal sector suggest that this sector might not be the malefactor as often indicated. The main results show that the informal economy not only contributes to economic growth but the firms also help to significantly reduce inflation by generating employment and hence maintain political stability in the economy despite the existence of a huge pool of “surplus labourers”.

Suggested Citation

  • Meghna Dutta, 2020. "Does Informality Hold the Key to Growth and Stability?," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot GmbH, Berlin, vol. 66(1), pages 29-45.
    • Handle: RePEc:dah:aeqaeq:v66_y2020_i1_q1_p29-45
    DOI: 10.3790/aeq.66.1.29
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    More about this item

    Keywords

    Growth; informal economy; inflation; stability;
    All these keywords.

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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