Informality, Corruption and Trade Reform
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.
|Date of creation:||May 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.eaber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- 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.
- Dessy, Sylvain & Pallage, Stéphane, 2001. "Taxes, Inequality and the Size of the Informal Sector," Cahiers de recherche 0112, Université Laval - Département d'économique.
- 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 331-43, May.
- 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.
- Marjit, Sugata, 2003. "Economic reform and informal wage--a general equilibrium analysis," Journal of Development Economics, Elsevier, vol. 72(1), pages 371-378, October.
- 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.
When requesting a correction, please mention this item's handle: RePEc:eab:tradew:22896. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shiro Armstrong)
If references are entirely missing, you can add them using this form.