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Global Value Chains and informality in developing economies: GVC participation and extent of informality

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  • Rohit, Kumar

Abstract

Informal businesses in developing economies (DEs) are often linked to Global Value Chains (GVCs) through subcontracting linkages. Yet the impact of GVC participation on the size of their informal economies remains underexplored. Assessing 73 DEs from various regions over the period 1995–2018, and sub-samples of 40 low and lower-middle-income countries (LICs and LMICs) and 33 upper-middle-income countries (UMICs) drawn from the full sample, we examine these dynamics. We find that forward and backward GVC linkages, as well as GVC positioning, are differently related with the shares of informal self-employment and informal output in DEs. Further, these relationships vary between UMICs and LICs-LMICs. We discuss some of the possible mechanisms driving these results. Contrary to the expectations that increasing GVC participation may facilitate transition towards formality in DEs, we do not find evidences supporting such tendencies. We discuss the implications of these findings for the possibilities of inclusive structural transformation.

Suggested Citation

  • Rohit, Kumar, 2025. "Global Value Chains and informality in developing economies: GVC participation and extent of informality," Structural Change and Economic Dynamics, Elsevier, vol. 74(C), pages 603-618.
    • Handle: RePEc:eee:streco:v:74:y:2025:i:c:p:603-618
    DOI: 10.1016/j.strueco.2025.05.012
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    Keywords

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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market

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