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Informality, Corruption and Trade Reform

Author

Listed:
  • Sugata Marjit

    (City University of Hong Kong)

  • Amit K. Biswas

Abstract

Stringent regulations coupled with corruption generate and sustain extra legal or informal transactions in the developing countries. Does trade related reform discourage informal activities and corruption? This paper attempts to analyze such a phenomenon. An import competing firm allocates production between a high wage formal and a low wage informal segment. Illegal use of labour in the informal sector is characterized by a probability of punishment which depends on the size of the informal output. In such a structure, as tariff comes down, total employment contracts but the informal sector expands. However, lowering of interest rate, possibly through the liberalization of capital account, tends to reduce the size of the informal segment. Hence, trade reforms may have conflicting impact on informality and corruption.

Suggested Citation

  • Sugata Marjit & Amit K. Biswas, 2011. "Informality, Corruption and Trade Reform," Trade Working Papers 22896, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:tradew:22896
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    References listed on IDEAS

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    1. Kar, Saibal & Marjit, Sugata, 2001. "Informal sector in general equilibrium: welfare effects of trade policy reforms," International Review of Economics & Finance, Elsevier, vol. 10(3), pages 289-300, July.
    2. Steven M. Fazzari & Bruce C. Petersen, 1993. "Working Capital and Fixed Investment: New Evidence on Financing Constraints," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 328-342, Autumn.
    3. Dessy, Sylvain & Pallage, Stephane, 2003. "Taxes, inequality and the size of the informal sector," Journal of Development Economics, Elsevier, vol. 70(1), pages 225-233, February.
    4. Gupta, Manash Ranjan & Chaudhuri, Sarbajit, 1997. "Formal Credit, Corruption and the Informal Credit Market in Agriculture: A Theoretical Analysis," Economica, London School of Economics and Political Science, vol. 64(254), pages 331-343, May.
    5. Marjit, Sugata, 2003. "Economic reform and informal wage--a general equilibrium analysis," Journal of Development Economics, Elsevier, vol. 72(1), pages 371-378, October.
    6. Carruth, Alan A. & Oswald, Andrew J., 1981. "The determination of union and non-union wage rates," European Economic Review, Elsevier, vol. 16(2), pages 285-302.
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    Cited by:

    1. repec:eee:jeborg:v:137:y:2017:i:c:p:90-104 is not listed on IDEAS
    2. Timothy McQuade & Stephen Salant & Jason Winfree, 2012. "Regulating an Experience Good Produced in the Formal Sector of a Developing Country when Consumers Cannot Identify Producers," Review of Development Economics, Wiley Blackwell, vol. 16(4), pages 512-526, November.
    3. Kar, Saibal & Saha, Shrabani, 2012. "Corruption, Shadow Economy and Income Inequality: Evidence from Asia," IZA Discussion Papers 7106, Institute for the Study of Labor (IZA).
    4. Benedikt Heid & Mario Larch & Alejandro Riaño, 2011. "Maquiladoras and Informality: A Mixed Blessing," CESifo Working Paper Series 3689, CESifo Group Munich.
    5. Marjit, Sugata & Mukherjee, Arijit & Yang, Lei, 2014. "On the Sustainability of Product Market Collusion under Credit Market Imperfection," MPRA Paper 60832, University Library of Munich, Germany.
    6. Sugata Marjit & Saibal Kar, 2012. "Firm Heterogeneity, Informal Wage and Good Governance," Review of Development Economics, Wiley Blackwell, vol. 16(4), pages 527-539, November.
    7. Professor Bahaudin G. Mujtaba, 2012. "Bribery Challenges And Business Ethics In Afghanistan," Far East Journal of Psychology and Business, Far East Research Centre, vol. 6(4), pages 58-76, February.
    8. Pi, Jiancai & Zhou, Yu, 2013. "Institutional quality and skilled–unskilled wage inequality," Economic Modelling, Elsevier, vol. 35(C), pages 356-363.
    9. 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.
    10. Dibyendu S. Maiti & Arup Mitra, 2010. "Skills, Informality and Development," Working Papers id:3115, eSocialSciences.
    11. Marjit, Sugata & Kar, Saibal, 2007. "Labor productivity growth, informal wage and capital mobility: A general equilibrium analysis," MPRA Paper 23912, University Library of Munich, Germany, revised 2008.
    12. Professor Hafiz Abdur Rashid & Hafsa Noreen & Monazza Karamat, 2012. "Growth And Prospects Of Islamic Banking In Pakistan," Far East Journal of Psychology and Business, Far East Research Centre, vol. 7(4), pages 52-65, May.
    13. Marjit, Sugata & Mandal, Biswajit, 2010. "Extortion and Informal Sector in a Small Open Economy," MPRA Paper 25044, University Library of Munich, Germany.
    14. Biswajit Mandal & Sugata Marjit & Hamid Beladi, 2018. "Reform, informal sector, and extortion," Economics and Politics, Wiley Blackwell, vol. 30(1), pages 106-123, March.
    15. Mukhiddin Jumaev & Prof. Dr. Dileep Kumar. M. & Jalal R. M. Hanaysha, 2012. "Impact Of Relationship Marketing On Customer Loyalty In The Banking Sector," Far East Journal of Psychology and Business, Far East Research Centre, vol. 6(4), pages 36-55, March.
    16. Barbier-Gauchard, Amélie & De Palma, Francesco & Diana, Giuseppe, 2014. "Why should Southern economies stay in the Euro Zone? The role of labor markets," Economic Modelling, Elsevier, vol. 43(C), pages 201-208.
    17. Marjit, Sugata & Maiti, Dibyendu S., 2005. "Globalization, Reform and the Informal Sector," WIDER Working Paper Series 012, World Institute for Development Economic Research (UNU-WIDER).
    18. Sugata Marjit & Arijit Mukherjee & Lei Yang, 2016. "Sustainabnility of Product Market Collusion under Credit Market Imperfections," CESifo Working Paper Series 6292, CESifo Group Munich.
    19. Dutta, Nabamita & Kar, Saibal & Roy, Sanjukta, 2013. "Corruption and persistent informality: An empirical investigation for India," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 357-373.
    20. Sugata Marjit & Biswajit Mandal, "undated". "Corruption and Trade in General Equilibrium," Discussion Papers 08/15, University of Nottingham, GEP.
    21. Mandal, Biswajit & Marjit, Sugata, 2010. "Corruption and wage inequality?," International Review of Economics & Finance, Elsevier, vol. 19(1), pages 166-172, January.
    22. Heid, Benedikt, 2014. "Preferential Trade Agreements, Unemployment, and the Informal Sector," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100376, Verein für Socialpolitik / German Economic Association.
    23. Chaudhuri, Sarbajit & Mandal, Biswajit, 2012. "Bureaucratic reform, informal sector and welfare," MPRA Paper 36072, University Library of Munich, Germany.

    More about this item

    Keywords

    Trade Liberalization; Informal sector; corruption;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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