IDEAS home Printed from https://ideas.repec.org/a/eee/deveco/v121y2016icp166-176.html
   My bibliography  Save this article

Informal sector, regulatory compliance, and leakage

Author

Listed:
  • Baksi, Soham
  • Bose, Pinaki

Abstract

The paper models a vertically related formal and informal sector, and endogenizes the size and regulatory compliance status of the informal sector. When the formal sector can circumvent costly regulations by outsourcing polluting intermediate goods from the informal sector, stricter regulations increase (when the “composition effect” of regulation dominates its “scale effect”) or decrease total pollution, and may even have a non-monotonic impact. We identify conditions under which a partially compliant informal sector acts as a source of leakage, and examine implications for optimal enforcement policy. Further, we show that price discrimination by the formal sector, when it purchases the intermediate goods from the informal sector, can worsen regulatory compliance by the informal sector and lead to more pollution.

Suggested Citation

  • Baksi, Soham & Bose, Pinaki, 2016. "Informal sector, regulatory compliance, and leakage," Journal of Development Economics, Elsevier, vol. 121(C), pages 166-176.
    • Handle: RePEc:eee:deveco:v:121:y:2016:i:c:p:166-176
    DOI: 10.1016/j.jdeveco.2016.03.008
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304387816300207
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jdeveco.2016.03.008?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo.
    2. Thomas Eichner & Rüdiger Pethig, 2011. "Carbon Leakage, The Green Paradox, And Perfect Future Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(3), pages 767-805, August.
    3. Biswas, Amit K. & Farzanegan, Mohammad Reza & Thum, Marcel, 2012. "Pollution, shadow economy and corruption: Theory and evidence," Ecological Economics, Elsevier, vol. 75(C), pages 114-125.
    4. Frederick van der Ploeg & Cees Withagen, 2015. "Global Warming and the Green Paradox: A Review of Adverse Effects of Climate Policies," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 9(2), pages 285-303.
    5. Blackman, Allen, 2000. "Informal Sector Pollution Control: What Policy Options Do We Have?," World Development, Elsevier, vol. 28(12), pages 2067-2082, December.
    6. Sudeshna Chattopadhyay & Sarmila Banerjee & Katrin Millock, 2010. "Pollution Control Instruments in the Presence of an Informal Sector," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00560558, HAL.
    7. Tanzi, Vito, 1999. "Uses and Abuses of Estimates of the Underground Economy," Economic Journal, Royal Economic Society, vol. 109(456), pages 338-347, June.
    8. Sudeshna Chattopadhyay & Sarmila Banerjee & Katrin Millock, 2010. "Pollution Control Instruments in the Presence of an Informal Sector," Post-Print halshs-00560558, HAL.
    9. Thomas, Jim, 1999. "Quantifying the Black Economy: 'Measurement without Theory' Yet Again?," Economic Journal, Royal Economic Society, vol. 109(456), pages 381-389, June.
    10. Brian R. Copeland & M. Scott Taylor, 1994. "North-South Trade and the Environment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(3), pages 755-787.
    11. Meredith L. Fowlie, 2009. "Incomplete Environmental Regulation, Imperfect Competition, and Emissions Leakage," American Economic Journal: Economic Policy, American Economic Association, vol. 1(2), pages 72-112, August.
    12. Friedrich Schneider & Andreas Buehn & Claudio E. Montenegro, 2011. "Shadow Economies All Over the World: New Estimates for 162 Countries from 1999 to 2007," Chapters, in: Friedrich Schneider (ed.), Handbook on the Shadow Economy, chapter 1, Edward Elgar Publishing.
    13. Chaudhuri, Tamal Datta, 1989. "A theoretical analysis of the informal sector," World Development, Elsevier, vol. 17(3), pages 351-355, March.
    14. Blackman, Allen & Bannister, Geoffrey J., 1998. "Community Pressure and Clean Technology in the Informal Sector: An Econometric Analysis of the Adoption of Propane by Traditional Mexican Brickmakers," Journal of Environmental Economics and Management, Elsevier, vol. 35(1), pages 1-21, January.
    15. Chaudhuri, Kausik & Schneider, Friedrich & Chattopadhyay, Sumana, 2006. "The size and development of the shadow economy: An empirical investigation from states of India," Journal of Development Economics, Elsevier, vol. 80(2), pages 428-443, August.
    16. Friedrich Schneider & Andreas Buehn & Claudio Montenegro, 2010. "New Estimates for the Shadow Economies all over the World," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 443-461.
    17. Chaudhuri, Sarbajit & Mukhopadhyay, Ujjaini, 2006. "Pollution and Informal Sector: A Theoretical Analysis," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 21, pages 363-378.
    18. 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.
    19. Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June.
    20. Pitchford, Rohan, 1995. "How Liable Should a Lender Be? The Case of Judgment-Proof Firms and Environmental Risk," American Economic Review, American Economic Association, vol. 85(5), pages 1171-1186, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wen, Huwei & Li, Nuoyan & Lee, Chien-Chiang, 2021. "Energy intensity of manufacturing enterprises under competitive pressure from the informal sector: Evidence from developing and emerging countries," Energy Economics, Elsevier, vol. 104(C).
    2. Yokoo, Hide-Fumi & Kawai, Kosuke & Higuchi, Yuki, 2018. "Informal recycling and social preferences: Evidence from household survey data in Vietnam," Resource and Energy Economics, Elsevier, vol. 54(C), pages 109-124.
    3. Saibal KAR & Biswajit MANDAL & Sugata MARJIT & Vivekananda MUKHERJEE, 2020. "Seeking Rent In The Informal Sector," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 91(1), pages 151-164, March.
    4. Lara-Rodríguez, Juan Sebastián, 2021. "How institutions foster the informal side of the economy: Gold and platinum mining in Chocó, Colombia," Resources Policy, Elsevier, vol. 74(C).
    5. Michaela Vourvoulia & Athanasios Kampas, 2024. "Are democratic regime and the magnitude of the informal economy robust determinants of human impacts on the environment? An extreme bounds analysis," Economics and Politics, Wiley Blackwell, vol. 36(1), pages 611-629, March.
    6. Fu, Tong & Jian, Ze, 2021. "Corruption pays off: How environmental regulations promote corporate innovation in a developing country," Ecological Economics, Elsevier, vol. 183(C).
    7. Prasun Bhattacharjee & Biswajit Mandal & Ravi Radhakrishnan, 2022. "Informal input sector and its impact on output market competitiveness," Indian Economic Review, Springer, vol. 57(2), pages 553-564, December.
    8. Yueyang Zhao & Jinzhou Mao & Yueshan Li, 2022. "Local governments’ environmental emphasis and corporate green innovation: evidence from China," Economic Change and Restructuring, Springer, vol. 55(4), pages 2577-2603, November.
    9. Nguyen, Canh Phuc & Nguyen, Binh Quang, 2023. "Environmental foe or friend: The influence of the shadow economy on forest land," Land Use Policy, Elsevier, vol. 124(C).
    10. Mitoma, Haruka, 2023. "Carbon footprint analysis considering production activities of informal sector: The case of manufacturing industries of India," Energy Economics, Elsevier, vol. 125(C).
    11. Jiafeng Gu, 2024. "Peer influence, market power, and enterprises' green innovation: Evidence from Chinese listed firms," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(1), pages 108-121, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Prasun Bhattacharjee & Biswajit Mandal & Ravi Radhakrishnan, 2022. "Informal input sector and its impact on output market competitiveness," Indian Economic Review, Springer, vol. 57(2), pages 553-564, December.
    2. Biswas, Amit K. & Farzanegan, Mohammad Reza & Thum, Marcel, 2012. "Pollution, shadow economy and corruption: Theory and evidence," Ecological Economics, Elsevier, vol. 75(C), pages 114-125.
    3. Chletsos, Michael & Sintos, Andreas, 2021. "Hide and seek: IMF intervention and the shadow economy," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 292-319.
    4. Shi Wang & Yizhou Yuan & Hua Wang, 2019. "Corruption, Hidden Economy and Environmental Pollution: A Spatial Econometric Analysis Based on China’s Provincial Panel Data," IJERPH, MDPI, vol. 16(16), pages 1-23, August.
    5. Gheorghe H. Popescu & Adriana Ana Maria Davidescu & Catalin Huidumac, 2018. "Researching the Main Causes of the Romanian Shadow Economy at the Micro and Macro Levels: Implications for Sustainable Development," Sustainability, MDPI, vol. 10(10), pages 1-37, September.
    6. Friedrich Schneider & Andreas Buehn & Claudio E. Montenegro, 2011. "Shadow Economies All Over the World: New Estimates for 162 Countries from 1999 to 2007," Chapters, in: Friedrich Schneider (ed.), Handbook on the Shadow Economy, chapter 1, Edward Elgar Publishing.
    7. Norman V. Loayza, 2016. "Informality in the Process of Development and Growth," The World Economy, Wiley Blackwell, vol. 39(12), pages 1856-1916, December.
    8. Julia Friesen & Konstantin M. Wacker, 2019. "Who is Afraid of Informal Competition? The Role of Finance for Firms in Developing and Emerging Economies," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 31(4), pages 1126-1146, September.
    9. Kiyoyasu Tanaka & Souknilanh Keola, 2017. "Shedding Light on the Shadow Economy: A Nighttime Light Approach," Journal of Development Studies, Taylor & Francis Journals, vol. 53(1), pages 32-48, January.
    10. Andreas Buehn & Alexander Karmann, 2011. "The Shadow Economy and Do-it-Yourself Activities: What Do We Know?," Chapters, in: Friedrich Schneider (ed.), Handbook on the Shadow Economy, chapter 7, Edward Elgar Publishing.
    11. Friedrich Schneider, 2014. "In the Shadow of the State – The Informal Economy and Informal Economy Labor Force," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 4, pages 227-248, December.
    12. Carillo, Maria Rosaria & Pugno, Maurizio, 2004. "The underground economy and underdevelopment," Economic Systems, Elsevier, vol. 28(3), pages 257-279, September.
    13. Cong Minh Huynh, 2020. "Shadow economy and air pollution in developing Asia: what is the role of fiscal policy?," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 22(3), pages 357-381, July.
    14. Cong Minh Huynh & Tan Loi Nguyen, 2020. "Fiscal policy and shadow economy in Asian developing countries: does corruption matter?," Empirical Economics, Springer, vol. 59(4), pages 1745-1761, October.
    15. Andreas Buehn & Friedrich Schneider, 2012. "Shadow economies around the world: novel insights, accepted knowledge, and new estimates," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(1), pages 139-171, February.
    16. repec:ces:ifodic:v:14:y:2017:i:4:p:19267788 is not listed on IDEAS
    17. Friedrich Schneider & Robert Klinglmair, 2004. "Shadow economies around the world: what do we know?," Economics working papers 2004-03, Department of Economics, Johannes Kepler University Linz, Austria.
    18. Osama Sweidan, 2017. "Economic Freedom and the Informal Economy," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 17(4), pages 1-10, December.
    19. Hazans, Mihails, 2011. "What explains prevalence of informal employment in European countries : the role of labor institutions, governance, immigrants, and growth," Policy Research Working Paper Series 5917, The World Bank.
    20. Schneider Friedrich & Buehn Andreas, 2017. "Shadow Economy: Estimation Methods, Problems, Results and Open questions," Open Economics, De Gruyter, vol. 1(1), pages 1-29, March.
    21. Ahmed Gulzar & Novaira Junaid & Adnan Haider, 2010. "What is Hidden in the Hidden Economy of Pakistan? Size, Causes, Issues, and Implications," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 49(4), pages 665-704.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:deveco:v:121:y:2016:i:c:p:166-176. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/devec .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.