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Lurking in the cities: Urbanization and the informal economy

  • Elgin, Ceyhun
  • Oyvat, Cem

This study investigates the empirical relationship between the level of urbanization and size of the informal economy using cross-country datasets proxying GDP and employment shares of urban informal sector. Our estimation results indicate that there is an inverted-U relationship between informality and the level of urbanization. That is, the share of the informal sector grows in the early phases of urbanization due to several pull and push factors; however, it tends to fall in the latter phases. We also show that factors like level of taxes, trade openness, and institutional quality tend to affect the size of the informal economy.

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File URL: http://www.sciencedirect.com/science/article/pii/S0954349X13000428
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Article provided by Elsevier in its journal Structural Change and Economic Dynamics.

Volume (Year): 27 (2013)
Issue (Month): C ()
Pages: 36-47

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Handle: RePEc:eee:streco:v:27:y:2013:i:c:p:36-47
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/525148

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