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Formal-Informal Sectors¡¯ Conflict: A Structuralist Framework For India


  • Saumya Chakrabarti

    () (Department of Economics and Politics, Visva-Bharati University)

  • Anirban Kundu

    () (Centre for Development Studies, Trivandrum)


The vast informal sector of the developing world in general and of India in particular is increasingly considered as a ¡®dispersed development engine¡¯ by the orthodox schools. It is also argued, though sizeable portion of informal sector exists independent of formal sector, a large segment bears a complementary relationship with these formal productions. However, on the contrary we propose a fundamental conflict between the two sectors given the generic food-supply-constraint. To analyse such a proposition we construct a multi-sector macroeconomic framework and also show that agriculture-formal sector interaction is distinctly different from agriculture-informal sector linkage. Next, we examine the impacts of variations in agricultural productivity and that of fiscal policy changes on this formal-informal conflict. In the first case of increasing agricultural productivity while both formal and informal sectors expand, the former benefits proportionately more than the latter. In the second case of expansionary fiscal policy the informal sector expands even at the cost of contraction of the formal one.

Suggested Citation

  • Saumya Chakrabarti & Anirban Kundu, 2009. "Formal-Informal Sectors¡¯ Conflict: A Structuralist Framework For India," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 34(2), pages 27-67, December.
  • Handle: RePEc:jed:journl:v:34:y:2009:i:2:p:27-67

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    References listed on IDEAS

    1. Ranis, Gustav & Stewart, Frances, 1993. "Rural nonagricultural activities in development : Theory and application," Journal of Development Economics, Elsevier, vol. 40(1), pages 75-101, February.
    2. Lanjouw, Jean O. & Lanjouw, Peter, 2001. "The rural non-farm sector: issues and evidence from developing countries," Agricultural Economics, Blackwell, vol. 26(1), pages 1-23, October.
    3. Amit Bhaduri, 2003. "Effective demand and the terms of trade in a dual economy: a Kaldorian perspective," Cambridge Journal of Economics, Oxford University Press, vol. 27(4), pages 583-595, July.
    4. Gerry, Chris, 1978. "Petty production and capitalist production in Dakar: The crisis of the self-employed," World Development, Elsevier, vol. 6(9-10), pages 1147-1160.
    5. Kaldor, Nicholas [Lord], 1976. "Inflation and Recession in the World Economy," Economic Journal, Royal Economic Society, vol. 86(344), pages 703-714, December.
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    Cited by:

    1. Ghani, Ejaz & Kerr, William R. & O'Connell, Stephen D., 2013. "The exceptional persistence of India's unorganized sector," Policy Research Working Paper Series 6454, The World Bank.
    2. Sanjay RODE, 2015. "Employment Pattern, Skills and Training Issues among Informal Sector Workers in Mumbai Metropolitan Region," Economia. Seria Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 18(1), pages 125-138, June.
    3. Ghani, Ejaz & Kerr, William R. & O'Connell, Stephen D., 2013. "Female business ownership and informal sector persistence," Policy Research Working Paper Series 6612, The World Bank.
    4. Svitlana Maksymenko & Mahbub Rabbani, 2011. "Economic Reforms, Human Capital, And Economic Growth In India And South Korea: A Cointegration Analysis," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 36(2), pages 39-59, June.
    5. Chakrabarti, Saumya & Kundu, Anirban & Nandi, Alok Kumar, 2011. "Farm–Non-Farm Linkage in India: A Structuralist Perspective," Indian Journal of Agricultural Economics, Indian Society of Agricultural Economics, vol. 66(2).

    More about this item


    Agriculture-Formal Sector Linkage; Domestic Exports; Agriculture-Informal; Sector Symbiosis; Agricultural Supply-Constraint; Formal-Informal Conflict;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy


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