IDEAS home Printed from https://ideas.repec.org/p/zbw/glodps/367.html
   My bibliography  Save this paper

Reformatory Policies and Factor Prices in a Developing Economy with Informal Sector

Author

Listed:
  • Mandal, Biswajit
  • Ghosh, Sujata

Abstract

Effects of different reformatory policies have always been a pulsating concern for the researchers and policy makers. Considering this concern, this paper attempts to check various effects of reformatory policies such as labor market reform, tariff cut, change in subsidy, bureaucratic reform in a typical small open economy comprising of both formal and informal sectors. It has been found that the implications of labor market reform and tariff liberalization for factor prices and wage disparity are distinctly opposite. However, skilled labor of the economy benefits from both labor market reform and export subsidy. Next we extend the basic model to bring in related corruption in the informal sector for its illegal nature. This calls for the existence of a sector which helps hassle free informal production. There we find that unskilled workers lose owing to both bureaucratic reform and labor market reform. Nevertheless, though traditionally labor market reform is supposed to harm workers, wage disparity gets ameliorated whereas tariff reform leads to worsening of it.

Suggested Citation

  • Mandal, Biswajit & Ghosh, Sujata, 2019. "Reformatory Policies and Factor Prices in a Developing Economy with Informal Sector," GLO Discussion Paper Series 367, Global Labor Organization (GLO).
  • Handle: RePEc:zbw:glodps:367
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/200512/1/GLO-DP-0367.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bhagwati, Jagdish N, 1982. "Directly Unproductive, Profit-seeking (DUP) Activities," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 988-1002, October.
    2. Schwartz, Gerd & Clements, Benedict, 1999. "Government Subsidies," Journal of Economic Surveys, Wiley Blackwell, vol. 13(2), pages 119-147, April.
    3. 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.
    4. Kyle Bagwell & Robert W. Staiger, 2004. "Subsidy Agreements," NBER Working Papers 10292, National Bureau of Economic Research, Inc.
    5. Sugata Marjit & Saibal Kar & Dibyendu Sundar Maiti, 2009. "Labor Market Reform And Poverty – The Role Of Informal Sector," World Scientific Book Chapters, in: Bhaskar Dutta & Tridip Ray & E Somanathan (ed.), New And Enduring Themes In Development Economics, chapter 11, pages 229-240, World Scientific Publishing Co. Pte. Ltd..
    6. Biswajit Mandal & Sugata Marjit & Hamid Beladi, 2018. "Reform, informal sector, and extortion," Economics and Politics, Wiley Blackwell, vol. 30(1), pages 106-123, March.
    7. James E. Anderson & Douglas Marcouiller, 2002. "Insecurity And The Pattern Of Trade: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 342-352, May.
    8. Marjit, Sugata & Kar, Saibal, 2011. "The Outsiders: Economic Reform and Informal Labour in a Developing Economy," OUP Catalogue, Oxford University Press, number 9780198071495.
    9. Schneider, Friedrich G., 2007. "Shadow Economies and Corruption All Over the World: New Estimates for 145 Countries," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW), vol. 1, pages 1-66.
    10. Sugata Marjit & Vivekananda Mukherjee & Martin Kolmar, 2006. "Poverty, taxation and governance," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 15(3), pages 325-333.
    11. 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.
    12. Sugata Marjit & Biswajit Mandal, 2012. "Domestic trading costs and pure theory of international trade," International Journal of Economic Theory, The International Society for Economic Theory, vol. 8(2), pages 165-178, June.
    13. Sarbajit Chaudhuri, 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 353-364, October.
    14. Paz, Lourenco, 2012. "The effect of trade liberalization on payroll tax evasion and labor informality," MPRA Paper 39545, University Library of Munich, Germany.
    15. Mandal Biswajit, 2018. "Tax on Traded Goods, and Corrupt Non-traded Goods Sector: Implications for Intermediation Activities," Review of Economics, De Gruyter, vol. 69(1), pages 1-15, April.
    16. Dutta, Nabamita & Kar, Saibal & Roy, Sanjukta, 2013. "Corruption and persistent informality: An empirical investigation for India," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 357-373.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sujata Ghosh & Biswajit Mandal, 2019. "Bureaucratic efficiency, economic reform and informal sector," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 9(2), pages 121-137, June.
    2. Alaka Shree Prasad & Biswajit Mandal, 2019. "Time zone difference, skill formation and corrupt informal sector: the role of virtual trade," Indian Economic Review, Springer, vol. 54(2), pages 261-290, December.
    3. Biswajit Mandal & Alaka Shree Prasad, 2020. "A simple model of time zone differences, virtual trade and informality," Indian Growth and Development Review, Emerald Group Publishing, vol. 14(1), pages 81-96, June.
    4. Prasad, Alaka Shree & Mandal, Biswajit, 2019. "Virtual trade between different time zones, educational capital and corrupt informal sector," MPRA Paper 96963, University Library of Munich, Germany.
    5. Saibal KAR & Biswajit MANDAL & Sugata MARJIT & Vivekananda MUKHERJEE, 2020. "Seeking Rent In The Informal Sector," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 91(1), pages 151-164, March.
    6. Chaudhuri, Sarbajit & Mukhopadhyay, Ujjaini, 2009. "Revisiting the Informal Sector: A General Equilibrium Approach," MPRA Paper 52135, University Library of Munich, Germany.
    7. Biswajit Mandal & Sugata Marjit & Hamid Beladi, 2018. "Reform, informal sector, and extortion," Economics and Politics, Wiley Blackwell, vol. 30(1), pages 106-123, March.
    8. Mandal, Biswajit & Roy, Sangita, 2016. "Trade liberalization and wage distribution when skilled intermediate input is used in import competing sector that uses a commom type of capital," MPRA Paper 87460, University Library of Munich, Germany.
    9. Marjit, Sugata & Kar, Saibal, 2012. "Informal sector and the developing world: relating theory and evidence to India," MPRA Paper 103445, University Library of Munich, Germany.
    10. Nihar Shembavnekar, 2015. "Tariff Liberalisation, Labour Market Flexibility and Employment: Evidence from India," Working Paper Series 8115, Department of Economics, University of Sussex Business School.
    11. Sugata Marjit & Biswajit Mandal, 2016. "International Trade, Migration and Unemployment – The Role of Informal Sector," Economics and Politics, Wiley Blackwell, vol. 28(1), pages 8-22, March.
    12. Mandal Biswajit, 2018. "Tax on Traded Goods, and Corrupt Non-traded Goods Sector: Implications for Intermediation Activities," Review of Economics, De Gruyter, vol. 69(1), pages 1-15, April.
    13. Sugata Marjit & Saibal Kar, 2012. "Firm Heterogeneity, Informal Wage and Good Governance," Review of Development Economics, Wiley Blackwell, vol. 16(4), pages 527-539, November.
    14. Sugata Marjit & Biswajit Mandal, 2008. "Corruption and Trade in General Equilibrium," Discussion Papers 08/15, University of Nottingham, GEP.
    15. Paz, Lourenco, 2012. "The effect of trade liberalization on payroll tax evasion and labor informality," MPRA Paper 39545, University Library of Munich, Germany.
    16. Subhasankar Chattopadhyay & Rima Mondal, 2017. "Characterisation of Economic Growth in Developing Economies with Informal Sector," Economic Papers, The Economic Society of Australia, vol. 36(1), pages 86-101, March.
    17. Jiancai Pi & Pengqing Zhang, 2017. "Social conflict and wage inequality," Journal of Economics, Springer, vol. 121(1), pages 29-49, May.
    18. Salem, Mélika Ben & Zaki, Chahir, 2019. "Revisiting the Impact of Trade Openness on Informal and Irregular Employment in Egypt," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 34(3), pages 465-497.
    19. Gani, Azmat & Scrimgeour, Frank, 2016. "New Zealand's trade with Asia and the role of good governance," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 36-53.
    20. Sugata Marjit & Dibyendu S. Maiti, 2005. "Globalization, Reform and the Informal Sector," WIDER Working Paper Series RP2005-12, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

    International Trade; Wages; General Equilibrium; Economic Policy; Informal Sector; Extortion;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F68 - International Economics - - Economic Impacts of Globalization - - - Policy
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:glodps:367. 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: . General contact details of provider: https://edirc.repec.org/data/glabode.html .

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/glabode.html .

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.