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Growth and the Informal Economy: A study on the effect of growth on the relative size of the informal economy in the developing world

Nordling, David LU (2017) NEKH03 20171
Department of Economics
Abstract
Throughout the developing world the informal (“black”) economy is a current issue. It constitutes a source of vulnerability to the people affiliated to it, and further hampers the nation´s economic performance. In addition it is at large unresponsive to policy change, and is further on difficult to monitor by government officials. The informal economy is a global problem. Previous studies on the informal economy suggest, in agreement with the classical theory, that the informal economy will wither away with growth. However, this study, using proxy-data from 102 developing countries suggests that the decreasing effect of growth on the informal economy cannot be taken for granted. This paper argues that, to ensure that the size of the... (More)
Throughout the developing world the informal (“black”) economy is a current issue. It constitutes a source of vulnerability to the people affiliated to it, and further hampers the nation´s economic performance. In addition it is at large unresponsive to policy change, and is further on difficult to monitor by government officials. The informal economy is a global problem. Previous studies on the informal economy suggest, in agreement with the classical theory, that the informal economy will wither away with growth. However, this study, using proxy-data from 102 developing countries suggests that the decreasing effect of growth on the informal economy cannot be taken for granted. This paper argues that, to ensure that the size of the informal economy is decreasing with growth, policy makers need to take steps to increase the cost associated with informal employment arrangements. An altering of the institutional settings regarding employment arrangements is crucial to ensure that the informal economy is indeed decreasing with growth. (Less)
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author
Nordling, David LU
supervisor
organization
course
NEKH03 20171
year
type
M2 - Bachelor Degree
subject
keywords
Informal Economy, Informal Sector, Growth, Development
language
English
id
8906207
date added to LUP
2017-06-02 09:29:23
date last changed
2017-06-02 09:29:23
@misc{8906207,
  abstract     = {Throughout the developing world the informal (“black”) economy is a current issue. It constitutes a source of vulnerability to the people affiliated to it, and further hampers the nation´s economic performance. In addition it is at large unresponsive to policy change, and is further on difficult to monitor by government officials. The informal economy is a global problem. Previous studies on the informal economy suggest, in agreement with the classical theory, that the informal economy will wither away with growth. However, this study, using proxy-data from 102 developing countries suggests that the decreasing effect of growth on the informal economy cannot be taken for granted. This paper argues that, to ensure that the size of the informal economy is decreasing with growth, policy makers need to take steps to increase the cost associated with informal employment arrangements. An altering of the institutional settings regarding employment arrangements is crucial to ensure that the informal economy is indeed decreasing with growth.},
  author       = {Nordling, David},
  keyword      = {Informal Economy,Informal Sector,Growth,Development},
  language     = {eng},
  note         = {Student Paper},
  title        = {Growth and the Informal Economy: A study on the effect of growth on the relative size of the informal economy in the developing world},
  year         = {2017},
}