IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Revisiting the Informal Sector: A General Equilibrium Approach

  • Chaudhuri, Sarbajit
  • Mukhopadhyay, Ujjaini

During the last 50 years with unprecedented population growth and urbanization, economic development, particularly in developing countries failed to generate adequate employment and income opportunities in the modern sector, compelling the surplus labour force to generate its own means of employment and survival in the informal sector. The main characteristics of the informal sector are easy entry for the new enterprises, reliance on indigenous resources, family ownership of enterprises, small scale of operations and low productivity, labour-intensive and adapted technology, reliance of workers on informal sources of education and skills, unregulated and competitive markets and lack of governmental support. The earlier contention that the informal sector epitomizes the ‘residual’ sector or a sector of last resort has been belied by a plethora of evidences indicating its dynamic character and its instrumental role in ameliorating unemployment and propelling the developing economies towards growth and prosperity. This conceptual metamorphosis regarding the informal sector has stimulated revived interest in the phenomenon among development economists, with quite a few books dealing with the sector analytically or empirically. However, the theoretical analysis of the different aspects of the sector is equally important, especially for formulation of appropriate policy prescriptions. Comparative static results, in many cases, diverge from the conventional wisdom. We noticed that although various authors have published theoretical papers in different journals, there are very few books that try to understand the informal sector in a theoretical framework. This lacuna inculcated in us an interest to write this book. It is mainly targeted towards postgraduate students of development economics with interest in the informal sector and researchers who are pursuing theoretical research on informal sector. In this book we endeavour to give an insight into the diverse aspects of the ‘multidimensional’ informal sector, its role in the context of unemployment, child labour, globalisation, environment, etc. and its multi-faceted interaction with the other sectors of the economy. Most importantly, we give an outline of the earlier doctrines, elucidate on the newer ones and critically review the contradictions within them to trace the nature and direction of desirable policy parameters that may be relevant in the present scenario. We have stylized the informal sector within different established general equilibrium frameworks. We have incorporated the informal sector in the traditional Heckscher-Ohlin model; considered the dualistic approach within the Harris-Todaro framework and also embraced the theories of dependency and/or underdevelopment where the focus shifts from marginalization to the structural linkages that exist between the informal and formal sectors in the form of subcontracting. We have considered situations, albeit in different models, where the informal sector produces internationally traded final commodity, non-traded final commodity, and traded and non-traded intermediate goods. Thus, although not exhaustive, we have tried to deal with most of the dimensions of the sector.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://mpra.ub.uni-muenchen.de/52135/1/MPRA_paper_52135.pdf
File Function: original version
Download Restriction: no

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 52135.

as
in new window

Length:
Date of creation: 15 May 2009
Date of revision:
Handle: RePEc:pra:mprapa:52135
Contact details of provider: Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de

More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Jafarey, Saqib & Lahiri, Sajal, 2002. "Will trade sanctions reduce child labour?: The role of credit markets," Journal of Development Economics, Elsevier, vol. 68(1), pages 137-156, June.
  2. Gupta, Manash Ranjan, 1997. "Foreign Capital and the Informal Sector: Comments," Economica, London School of Economics and Political Science, vol. 64(254), pages 353-63, May.
  3. Bedi, Arjun S. & Garg, Ashish, 2000. "The effectiveness of private versus public schools: the case of Indonesia," Journal of Development Economics, Elsevier, vol. 61(2), pages 463-494, April.
  4. Edward M. Gramlich, 1976. "Impact of Minimum Wages on Other Wages, Employment, and Family Incomes," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(2), pages 409-462.
  5. Manash Gupta, 1994. "Duty-free zone, unemployment, and welfare a note," Journal of Economics, Springer, vol. 59(2), pages 217-236, June.
  6. 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.
  7. Harrison, Ann & Hanson, Gordon, 1999. "Who gains from trade reform? Some remaining puzzles," Journal of Development Economics, Elsevier, vol. 59(1), pages 125-154, June.
  8. Ranjan, Priya, 1999. "An economic analysis of child labor," Economics Letters, Elsevier, vol. 64(1), pages 99-105, July.
  9. Geeta Kingdon & John Knight, 2007. "Unemployment in South Africa, 1995--2003: Causes, Problems and Policies," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 16(5), pages 813-848, November.
  10. Gupta, Manash Ranjan, 2000. "Wage Determination of a Child Worker: A Theoretical Analysis," Review of Development Economics, Wiley Blackwell, vol. 4(2), pages 219-28, June.
  11. Ranjan Ray, 2000. "Analysis of child labour in Peru and Pakistan: A comparative study," Journal of Population Economics, Springer, vol. 13(1), pages 3-19.
  12. Khan, M. Ali, 1982. "Tariffs, foreign capital and immiserizing growth with urban unemployment and specific factors of production," Journal of Development Economics, Elsevier, vol. 10(2), pages 245-256, April.
  13. 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.
  14. Mazumdar, Dipak, 1976. "The urban informal sector," World Development, Elsevier, vol. 4(8), pages 655-679, August.
  15. Sarbajit Chaudhuri, 2003. "How and how far to liberalize a developing economy with informal sector and factor market distortions," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 12(4), pages 403-428.
  16. Chaudhuri, Sarbajit, 2000. "Rural-Urban Migration, the Informal Sector, Urban Unemployment, and Development Policies: A Theoretical Analysis," Review of Development Economics, Wiley Blackwell, vol. 4(3), pages 353-64, October.
  17. Hamid Beladi & Sugata Marjit, 1992. "Foreign Capital and Protectionism," Canadian Journal of Economics, Canadian Economics Association, vol. 25(1), pages 233-38, February.
  18. Revenga, Ana, 1997. "Employment and Wage Effects of Trade Liberalization: The Case of Mexican Manufacturing," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S20-43, July.
  19. Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January.
  20. Shahnaz Hamid, 1994. "A Micro Analysis of Urban Child Labour: Some Determinants of Labour and its Conditions," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 33(4), pages 1249-1271.
  21. Jay Pil Choi & Marcel Thum, 2002. "Corruption and the Shadow Economy," CESifo Working Paper Series 633, CESifo Group Munich.
  22. Sarbajit Chaudhuri, 2001. "Foreign Capital Inflow, Non-traded Intermediary, Urban Unemployment, and Welfare in a Small Open Economy: A Theoretical Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 40(3), pages 225-235.
  23. Kaushik Basu, 1999. "Child Labor: Cause, Consequence, and Cure, with Remarks on International Labor Standards," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1083-1119, September.
  24. Sarbajit Chaudhuri & Shigemi Yabuuchi & Ujjaini Mukhopadhyay, 2006. "Inflow Of Foreign Capital And Trade Liberalization In A Model With An Informal Sector And Urban Unemployment," Pacific Economic Review, Wiley Blackwell, vol. 11(1), pages 87-103, 02.
  25. Grace, Richard & Turner, R. Kerry & Walter, Ingo, 1978. "Secondary materials and international trade," Journal of Environmental Economics and Management, Elsevier, vol. 5(2), pages 172-186, June.
  26. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Juan Botero, 2003. "The Regulation of Labor," NBER Working Papers 9756, National Bureau of Economic Research, Inc.
  27. Chaudhuri, Sarbajit & Yabuuchi, Shigemi, 2007. "Economic liberalization and wage inequality in the presence of labour market imperfection," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 592-603.
  28. Neary, J Peter, 2002. "Foreign Direct Investment and the Single Market," CEPR Discussion Papers 3419, C.E.P.R. Discussion Papers.
  29. Sarbajit Chaudhuri & Ujjaini Mukhopadhyay, 2002. "Economic liberalization and welfare in a model with an informal sector," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(1), pages 143-172, March.
  30. Kruger, Diana I., 2007. "Coffee production effects on child labor and schooling in rural Brazil," Journal of Development Economics, Elsevier, vol. 82(2), pages 448-463, March.
  31. Marjit, Sugata, 2003. "Economic reform and informal wage--a general equilibrium analysis," Journal of Development Economics, Elsevier, vol. 72(1), pages 371-378, October.
  32. Brecher, Richard A. & Diaz Alejandro, Carlos F., 1977. "Tariffs, foreign capital and immiserizing growth," Journal of International Economics, Elsevier, vol. 7(4), pages 317-322, November.
  33. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, vol. 42(3-4), pages 371-393, May.
  34. Marjit, Sugata, 1991. "Agro-based industry and rural-urban migration : A case for an urban employment subsidy," Journal of Development Economics, Elsevier, vol. 35(2), pages 393-398, April.
  35. Katz, Eliakim & Stark, Oded, 1986. "Labor Migration and Risk Aversion in Less Developed Countries," Journal of Labor Economics, University of Chicago Press, vol. 4(1), pages 134-49, January.
  36. Fortin, Bernard & Marceau, Nicolas & Savard, Luc, 1997. "Taxation, wage controls and the informal sector," Journal of Public Economics, Elsevier, vol. 66(2), pages 293-312, November.
  37. Sarbajit Chaudhuri & Manash Ranjan Gupta, 2005. "Child Labour And Trade Liberalization In A Developing Economy," Labor and Demography 0510017, EconWPA.
  38. Chaudhuri, Sarbajit & Mukhopadhyay, Ujjaini, 2006. "Pollution and Informal Sector: A Theoretical Analysis," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 21, pages 363-378.
  39. House, William J, 1984. "Nairobi's Informal Sector: Dynamic Entrepreneurs or Surplus Labor?," Economic Development and Cultural Change, University of Chicago Press, vol. 32(2), pages 277-302, January.
  40. Ranjan, P., 1999. ""Credit Constraints and the Phenomenon of Child Labor"," Papers 98-99-12, California Irvine - School of Social Sciences.
  41. Beladi, Hamid & Yabuuchi, Shigemi, 2001. "Tariff-induced capital inflow and welfare in the presence of unemployment and informal sector," Japan and the World Economy, Elsevier, vol. 13(1), pages 51-60, January.
  42. Pierre-Daniel G. Sarte, 1999. "Informality and rent-seeking bureaucracies in a model of long-run growth," Working Paper 99-07, Federal Reserve Bank of Richmond.
  43. Sarbajit Chaudhuri & Ujjaini Mukherjee, 2005. "Removal Of Protectionism, Foreign Investment And Welfare In A Model Of Informal Sector," International Trade 0511009, EconWPA.
  44. Gordon H. Hanson & Ann Harrison, 1999. "Trade Liberalization and Wage Inequality in Mexico," ILR Review, Cornell University, ILR School, vol. 52(2), pages 271-288, January.
  45. Sarbajit Chaudhuri, 2005. "Labour Market Distortion, Technology Transfer And Gainful Effects Of Foreign Capital," Manchester School, University of Manchester, vol. 73(2), pages 214-227, 03.
  46. Mishra, Ajit, 1994. "Clientelization and fragmentation in backward agriculture: Forward induction and entry deterrence," Journal of Development Economics, Elsevier, vol. 45(2), pages 271-285, December.
  47. Edmonds, Eric V. & Pavcnik, Nina, 2005. "The effect of trade liberalization on child labor," Journal of International Economics, Elsevier, vol. 65(2), pages 401-419, March.
  48. Fields, Gary S., 1975. "Rural-urban migration, urban unemployment and underemployment, and job-search activity in LDCs," Journal of Development Economics, Elsevier, vol. 2(2), pages 165-187, June.
  49. Swaminathan, M., 1991. "Understanding the "Informal Sector": A Survey," Research Paper 95, World Institute for Development Economics Research.
  50. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  51. Ethier, Wilfred J, 1986. "Illegal Immigration: The Host-Country Problem," American Economic Review, American Economic Association, vol. 76(1), pages 56-71, March.
  52. Koizumi, Tetsunori & Kopecky, Kenneth J., 1977. "Economic growth, capital movements and the international transfer of technical knowledge," Journal of International Economics, Elsevier, vol. 7(1), pages 45-65, February.
  53. Koujianou Goldberg, Pinelopi & Pavcnik, Nina, 2003. "The response of the informal sector to trade liberalization," Journal of Development Economics, Elsevier, vol. 72(2), pages 463-496, December.
  54. Ray, R., 1999. "Poverty, Household Size and Child Welfare in India," Papers 1999-01, Tasmania - Department of Economics.
  55. Swaminathan, Madhura, 1998. "Economic growth and the persistence of child labor: Evidence from an Indian city," World Development, Elsevier, vol. 26(8), pages 1513-1528, August.
  56. Cole, William E & Sanders, Richard D, 1985. "Internal Migration and Urban Employment in the Third World," American Economic Review, American Economic Association, vol. 75(3), pages 481-94, June.
  57. Cole, William E. & Sanders, Richard D., 1983. "Interstate migration in Mexico : Variations on the Todaro theme," Journal of Development Economics, Elsevier, vol. 12(3), pages 341-354, June.
  58. Ihrig, Jane & Moe, Karine S., 2004. "Lurking in the shadows: the informal sector and government policy," Journal of Development Economics, Elsevier, vol. 73(2), pages 541-557, April.
  59. Sarbajit Chaudhuri & Jayanta Kumar Dwibedi, 2007. "Foreign Capital Inflow, Fiscal Policies And Incidence Of Child Labour In A Developing Economy," Manchester School, University of Manchester, vol. 75(1), pages 17-46, 01.
  60. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557.
  61. Asep Suryahadi & Wenefrida Widyanti & Daniel Perwira & Sudarno Sumarto, 2003. "Minimum Wage Policy And Its Impact On Employment In The Urban Formal Sector," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 39(1), pages 29-50.
  62. Subhayu Bandyopadhyay, 2006. "Illegal Immigration and Second-best Import Tariffs," Review of International Economics, Wiley Blackwell, vol. 14(1), pages 93-103, 02.
  63. Dessy, Sylvain E., 2000. "A defense of compulsive measures against child labor," Journal of Development Economics, Elsevier, vol. 62(1), pages 261-275, June.
  64. Bhaduri, Amit, 1977. "On the Formation of Usurious Interest Rates in Backward Agriculture," Cambridge Journal of Economics, Oxford University Press, vol. 1(4), pages 341-52, December.
  65. Banerjee, Biswajit, 1983. "The Role of the Informal Sector in the Migration Process: A Test of Probabilistic Migration Models and Labour Market Segmentation for India," Oxford Economic Papers, Oxford University Press, vol. 35(3), pages 399-422, November.
  66. Ronald W. Jones & Sugata Marjit, 2003. "Economic Development, Trade and Wages," German Economic Review, Verein für Socialpolitik, vol. 4(1), pages 1-17, February.
  67. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
  68. Adriana D. Kugler, 1999. "The impact of firing costs on turnover and unemployment: Evidence from the Colombian labour market reform," Economics Working Papers 388, Department of Economics and Business, Universitat Pompeu Fabra.
  69. Mincer, Jacob, 1976. "Unemployment Effects of Minimum Wages," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S87-104, August.
  70. Yabuuchi, Shigemi & Chaudhuri, Sarbajit, 2007. "International migration of labour and skilled-unskilled wage inequality in a developing economy," Economic Modelling, Elsevier, vol. 24(1), pages 128-137, January.
  71. 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.
  72. Jean-Marie Baland & James A. Robinson, 2000. "Is Child Labor Inefficient?," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 663-679, August.
  73. Sarbajit Chaudhuri & Jayanta Kumar Dwibedi, 2006. "Trade Liberalization in Agriculture in Developed Nations and Incidence of Child Labour in a Developing Economy," Bulletin of Economic Research, Wiley Blackwell, vol. 58(2), pages 129-150, 04.
  74. Simon Johnson & Daniel Kaufman & Andrei Shleifer, 1997. "The Unofficial Economy in Transition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 159-240.
  75. Sugata Marjit & Hamid Beladi & Avik Chakrabarti, 2004. "Trade and Wage Inequality in Developing Countries," Economic Inquiry, Western Economic Association International, vol. 42(2), pages 295-303, April.
  76. Bond, Eric W. & Chen, Tain-Jy, 1987. "The welfare effects of illegal immigration," Journal of International Economics, Elsevier, vol. 23(3-4), pages 315-328, November.
  77. Marjit, Sugata & Beladi, Hamid, 1996. "Protection and the gainful effects of foreign capital," Economics Letters, Elsevier, vol. 53(3), pages 311-316, December.
  78. Sarbajit Chaudhuri, 2005. "Foreign Capital, Welfare And Urban Unemployment In The Presence Of Agricultural Dualism," International Trade 0510010, EconWPA.
  79. Boeri, Tito & Garibaldi, Pietro, 2002. "Shadow Activity and Unemployment in a Depressed Labour Market," CEPR Discussion Papers 3433, C.E.P.R. Discussion Papers.
  80. Phillippe G. Leite & Terry McKinley & Rafael Guerreiro Osório, 2006. "The Post-Apartheid Evolution of Earnings Inequality in South Africa, 1995-2004," Working Papers 32, International Policy Centre for Inclusive Growth.
  81. Chaudhuri, Sarbajit & Banerjee, Dibyendu, 2007. "Economic liberalization, capital mobility and informal wage in a small open economy: A theoretical analysis," Economic Modelling, Elsevier, vol. 24(6), pages 924-940, November.
  82. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
  83. Basu, Kaushik & Bell, Clive, 1991. "Fragmented duopoly : Theory and applications to backward agriculture," Journal of Development Economics, Elsevier, vol. 36(2), pages 145-165, October.
  84. Mazumdar, Dipak, 1983. "Segmented Labor Markets in LDCs," American Economic Review, American Economic Association, vol. 73(2), pages 254-59, May.
  85. Findlay, Ronald, 1978. "Relative Backwardness, Direct Foreign Investment, and the Transfer of Technology: A Simple Dynamic Model," The Quarterly Journal of Economics, MIT Press, vol. 92(1), pages 1-16, February.
  86. Beyer, Harald & Rojas, Patricio & Vergara, Rodrigo, 1999. "Trade liberalization and wage inequality," Journal of Development Economics, Elsevier, vol. 59(1), pages 103-123, June.
  87. Beladi, Hamid & Marjit, Sugata, 1992. "Foreign capital, unemployment and national welfare," Japan and the World Economy, Elsevier, vol. 4(4), pages 311-317, December.
  88. Grinols, Earl L, 1991. "Unemployment and Foreign Capital: The Relative Opportunity Costs of Domestic Labour and Welfare," Economica, London School of Economics and Political Science, vol. 58(229), pages 107-21, February.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:52135. 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: (Ekkehart Schlicht)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.