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Informal sector dynamics in times of fragile growth: The case of Madagascar

Listed author(s):
  • Julia Vaillant

    (1] The World Bank, Washington DC, USA.[2] Institut de Recherche pour le Developpement, DIAL, Paris, France.)

  • Michael Grimm

    (1] University of Passau, Passau, Germany.[2] IZA, Bonn, Germany.[3] Erasmus University Rotterdam, The Hague, The Netherlands.)

  • Jann Lay

    (1] German Institute of Global and Area Studies, Hamburg, Germany.[2] University of Göttingen, Göttingen, Germany.)

  • François Roubaud

    (Institut de Recherche pour le Developpement, DIAL, Paris, France.)

This article examines the dynamics of the informal sector in Madagascar during the 1995–2004 period, which was characterized by sustained growth that ended due to a major political crisis. As conventionally assumed by simple dualistic models, the informal sector indeed fulfils a labor-absorbing function in times of crisis. However, informal business creation was also a major trend both during macroeconomic growth and during crisis and recovery. Growth in the informal sector was mostly extensive, with little job creation or capital accumulation. Although such a situation would be consistent with the existence of poverty traps, estimated marginal returns to capital are decreasing, which tends to reject this hypothesis.

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Article provided by Palgrave Macmillan & European Association of Development Research and Training Institutes (EADI) in its journal European Journal of Development Research.

Volume (Year): 26 (2014)
Issue (Month): 4 (September)
Pages: 437-455

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Handle: RePEc:pal:eurjdr:v:26:y:2014:i:4:p:437-455
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  1. McKenzie, David J & Woodruff, Christopher, 2006. "Do Entry Costs Provide an Empirical Basis for Poverty Traps? Evidence from Mexican Microenterprises," Economic Development and Cultural Change, University of Chicago Press, vol. 55(1), pages 3-42, October.
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