Trade Liberalization And Informality: New Stylized Facts
The relationship between trade liberalization and informal activity has not received the attention, whether theoretical or empirical, that it may deserve. The conventional view posits that trade liberalization would cause a rise in informality. This paper uses three different data sets to assess the sign of the relationship. Empirical results provide a mixed picture. Macro-founded data tend to produce results supporting the conventional view; micro-founded data do not. Empirical results also suggest that while informal output increases with deeper trade liberalization, informal employment falls.
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