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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)

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    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.

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    Article provided by Chung-Ang Unviersity, Department of Economics in its journal Journal Of Economic Development.

    Volume (Year): 34 (2009)
    Issue (Month): 2 (December)
    Pages: 27-67

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    Handle: RePEc:jed:journl:v:34:y:2009:i:2:p:27-67
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    1. Lanjouw, Jean O. & Lanjouw, Peter, 2001. "The rural non-farm sector: issues and evidence from developing countries," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 26(1), October.
    2. 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.
    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. Kaldor, Nicholas [Lord], 1976. "Inflation and Recession in the World Economy," Economic Journal, Royal Economic Society, vol. 86(344), pages 703-14, December.
    5. 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.
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