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Trade liberalization, production organization and informal sector of the developing countries

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  • Dibyendu Maiti
  • Sugata Marjit

Abstract

The paper provides an explanation of recent empirical evidence on fragmentation and the expansion of the informal sector in India. We argue that as the prospect of getting a better price in the international market increases, the producers in the formal sector act more like merchants and subcontract production activities to the producers in the informal sectors. Expanding production in the informal sector allows the firm to take advantage of a growing export market. Our theoretical model explains such organizational change in terms of allocation of monitoring effort between marketing and production. The existence of a low-wage informal sector facilitates division of labor and specialization in the formal segment.

Suggested Citation

  • Dibyendu Maiti & Sugata Marjit, 2008. "Trade liberalization, production organization and informal sector of the developing countries," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 17(3), pages 453-461.
  • Handle: RePEc:taf:jitecd:v:17:y:2008:i:3:p:453-461
    DOI: 10.1080/09638190802137125
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    Citations

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    Cited by:

    1. Dibyendu S. Maiti & Arup Mitra, 2010. "Skills, Informality and Development," Working Papers id:3115, eSocialSciences.
    2. repec:eee:jeborg:v:137:y:2017:i:c:p:90-104 is not listed on IDEAS
    3. Roychowdhury, Punarjit & Dutta, Mousumi, 2011. "Regulation, governance and informality: an empirical analysis of selected countries," MPRA Paper 33775, University Library of Munich, Germany.
    4. Dibyendu Maiti & Sugata Marjit, 2011. "Subcontracting, R&D And Labour Productivity: A Theoretical Explanation," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 36(3), pages 1-24, September.
    5. Marjit, Sugata & Kar, Saibal & Chaudhuri, Sarbajit, 2011. "Recession in the skilled sector and implications for informal wage," Research in Economics, Elsevier, vol. 65(3), pages 158-163, September.

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