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Diverging Paths: Transition in the Presence of the Informal Sector

  • Maxim Bouev

    ()

This work suggests a development of the seminal model of transition from plan to market economy by Aghion and Blanchard (1994). We introduce an informal sector to show that its presence can generate qualitatively di?erent steady states, to which the economy converges in the end of transition. Two types of transitional dynamics are considered, and it is argued that they can help explain di?erences in evolution of formal and informal output exhibited, on the one hand, by East European countries and, on the other hand, by the former Soviet Union republics such as Russia or Ukraine.

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Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2004-689.

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Length: 52 pages
Date of creation: 01 May 2004
Date of revision:
Handle: RePEc:wdi:papers:2004-689
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