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Lurking in the cities: Urbanization and the informal economy

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  • Elgin, Ceyhun
  • Oyvat, Cem

Abstract

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.

Suggested Citation

  • Elgin, Ceyhun & Oyvat, Cem, 2013. "Lurking in the cities: Urbanization and the informal economy," Structural Change and Economic Dynamics, Elsevier, vol. 27(C), pages 36-47.
    • Handle: RePEc:eee:streco:v:27:y:2013:i:c:p:36-47
    DOI: 10.1016/j.strueco.2013.06.003
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Urbanization; Informal sector; Kuznets curve; Panel data;
    All these keywords.

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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