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Informality in Latin America and the Caribbean

Author

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  • Loayza, Norman V.
  • Serven, Luis
  • Sugawara, Naotaka

Abstract

This paper studies the causes and consequences of informality and applies the analysis to countries in Latin America and the Caribbean. It starts with a discussion on the definition and measures of informality, as well as on the reasons why widespread informality should be of great concern. The paper analyzes informality's main determinants, arguing that informality is not single-caused but results from the combination of poor public services, a burdensome regulatory regime, and weak monitoring and enforcement capacity by the state. This combination is especially explosive when the country suffers from low educational achievement and features demographic pressures and primary production structures. Using cross-country regression analysis, the paper evaluates the empirical relevance of each determinant of informality. It then applies the estimated relationships to most countries in Latin America and the Caribbean in order to assess the country-specific relevance of each proposed mechanism.

Suggested Citation

  • Loayza, Norman V. & Serven, Luis & Sugawara, Naotaka, 2009. "Informality in Latin America and the Caribbean," Policy Research Working Paper Series 4888, The World Bank.
  • Handle: RePEc:wbk:wbrwps:4888
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    References listed on IDEAS

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    1. Loayza, Norman V. & Raddatz, Claudio, 2010. "The composition of growth matters for poverty alleviation," Journal of Development Economics, Elsevier, vol. 93(1), pages 137-151, September.
    2. Barro, Robert J. & Lee, Jong-Wha, 1993. "International comparisons of educational attainment," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 363-394, December.
    3. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-563, July.
    4. Loayza, Norman V. & Rigolini, Jamele, 2006. "Informality trends and cycles," Policy Research Working Paper Series 4078, The World Bank.
    5. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July.
    6. Schneider, Friedrich, 2004. "The Size of the Shadow Economies of 145 Countries all over the World: First Results over the Period 1999 to 2003," IZA Discussion Papers 1431, Institute for the Study of Labor (IZA).
    7. Loayza, Norman V., 1996. "The economics of the informal sector: a simple model and some empirical evidence from Latin America," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 129-162, December.
    8. 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.
    9. Klarita Gërxhani, 2004. "The Informal Sector in Developed and Less Developed Countries: A Literature Survey," Public Choice, Springer, vol. 120(3_4), pages 267-300, September.
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    Citations

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    Cited by:

    1. World Bank, 2009. "Mozambique - Investment Climate Assessment - 2009 : Sustaining and Broadening Growth," World Bank Other Operational Studies 3158, The World Bank.
    2. Rodrigo Ceni, 2014. "Social security schemes and labor supply in the formal and informal sectors," Documentos de Trabajo (working papers) 14-12, Instituto de Economía - IECON.
    3. Cristina Fernández & Leonardo Villar, 2017. "Taxonomía de la informalidad en América Latina," WORKING PAPERS SERIES. DOCUMENTOS DE TRABAJO 015814, FEDESARROLLO.
    4. Mario Tello, 2011. "Indicadores Del Sector Mype Informal En El Perú: Valor Agregado, Potencial Exportador, Capacidad De Formalizarse Y Requerimientos De Normas Técnicas Peruanas De Sus Productos," Documentos de Trabajo / Working Papers 2011-310, Departamento de Economía - Pontificia Universidad Católica del Perú.
    5. Goñi, Edwin & Humberto López, J. & Servén, Luis, 2011. "Fiscal Redistribution and Income Inequality in Latin America," World Development, Elsevier, vol. 39(9), pages 1558-1569, September.
    6. Rodrigo Ceni, 2014. "Informality and government enforcement in Latin America," Documentos de Trabajo (working papers) 14-21, Instituto de Economía - IECON.

    More about this item

    Keywords

    Labor Markets; Labor Policies; Population Policies; Economic Theory&Research; Debt Markets;

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