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Informal Sector and Manufacturing Location: In Search of the Missing Links


  • Michiel Gerritse
  • Ana Isabel Moreno-Monroy


Although the informal sector is very large and unevenly distributed within developing countries, its relative size and location have not been investigated from the perspective of location models. This paper builds a modified Core--Periphery model where formal and informal firms compete in consumer markets. The model suggests that in a peripheral region, where informal goods constitute a competitive alternative to formal goods, a larger critical mass of workers is needed for the formal sector to become profitable. Informal sector competitiveness, however, also increases formal firms' sensitivity to home market effects. Thus, indirectly, a competitive informal sector can foster formal manufacturing agglomeration. RÉSUMÉ Bien que le secteur informel soit très étendu et distribué de façon irrégulière dans les pays en voie de développement, son envergure et sa distribution relatives n'ont fait l'objet d'aucune étude sur le plan de modèles de localisation. La présente communication crée un modèle « centre--périphérie » modifié, dans lequel des entreprises officielles et non officielles rivalisent sur des marchés de consommation. D'après ce modèle, dans une zone périphérique où les produits informels constituent une alternative à des produits officiels, une masse critique de travailleurs plus importante est nécessaire afin que le secteur officiel devienne rentable. Toutefois, la compétitivité du secteur informel accroıˆt également la sensibilité des entreprises officielles à des effets sur le marché interne. En conséquence, un secteur informel compétitif peut, indirectement, encourager une agglomération de fabrication officielle. EXTRACTO Aunque el sector informal es muy amplio y está irregularmente distribuido dentro de los países en desarrollo, su tamaño relativo y localización no se han investigado desde la perspectiva de modelos de localización. Este estudio construye un modelo modificado de centro--periferia donde empresas formales e informales compiten en mercados de consumo. El modelo sugiere que, en una región periférica donde las mercancías informales constituyen una alternativa competitiva a las mercancías formales, el sector formal necesita una mayor masa crítica de trabajadores para ser rentable. No obstante, la competitividad del sector informal también aumenta la sensibilidad de las empresas formales a los efectos del mercado doméstico. Por lo tanto, indirectamente, un sector informal competitivo puede fomentar la aglomeración de la industria manufacturera formal.

Suggested Citation

  • Michiel Gerritse & Ana Isabel Moreno-Monroy, 2012. "Informal Sector and Manufacturing Location: In Search of the Missing Links," Spatial Economic Analysis, Taylor & Francis Journals, vol. 7(2), pages 179-201, June.
  • Handle: RePEc:taf:specan:v:7:y:2012:i:2:p:179-201
    DOI: 10.1080/17421772.2012.669493

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    References listed on IDEAS

    1. Böhme, Marcus & Thiele, Rainer, 2012. "Is the Informal Sector Constrained from the Demand Side? Evidence for Six West African Capitals," World Development, Elsevier, vol. 40(7), pages 1369-1381.
    2. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, January.
    3. Diego Winkelried, 2005. "Income Distribution and the Size of the Informal Sector," Development and Comp Systems 0512005, EconWPA.
    4. Fields,Gary S., 2005. "A guide to multisector labor market models," Policy Research Working Paper Series 32547, The World Bank.
    5. Rafael La Porta & Andrei Shleifer, 2008. "The Unofficial Economy and Economic Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 275-363.
    6. repec:hrv:faseco:33078210 is not listed on IDEAS
    7. El Badaoui, Eliane & Strobl, Eric & Walsh, Frank, 2010. "The formal sector wage premium and firm size," Journal of Development Economics, Elsevier, vol. 91(1), pages 37-47, January.
    8. Fields,Gary S., 2005. "A guide to multisector labor market models," Social Protection and Labor Policy and Technical Notes 32547, The World Bank.
    9. Brakman,Steven & Garretsen,Harry & van Marrewijk,Charles, 2009. "The New Introduction to Geographical Economics," Cambridge Books, Cambridge University Press, number 9780521875325, March.
    10. Swaminathan, M., 1991. "Understanding the "Informal Sector": A Survey," Research Paper 95, World Institute for Development Economics Research.
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    Cited by:

    1. Carla Calá & Josep-Maria Arauzo-Carod & Miguel Manjón-Antolín, 2015. "The determinants of exit in a developing country: core and peripheral regions," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(3), pages 927-944, May.
    2. Calá, Carla Daniela, 2014. "Regional issues on firm entry and exit in argentina: core and peripheral regions," Nülan. Deposited Documents 2023, Universidad Nacional de Mar del Plata, Facultad de Ciencias Económicas y Sociales, Centro de Documentación.

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