Roychowdhury, Punarjit and Dutta, Mousumi (2011): Regulation, governance and informality: an empirical analysis of selected countries.
Download (593kB) | Preview
The Informal Economy provides employment to more than 60 per cent of the labour population in the developing world despite being a site unfettered by regulations and social norms of fairness governing pay and work conditions. In assessing the factors behind an informal agent’s decision to formalize, it is asserted that rigidity in regulatory mechanism is the primary cause that impedes the process of formalization. However whether flexible regulations can encourage formalization by making gains of formalization more accessible and certain remains a question. In this paper we argue that flexible regulations does not necessarily manifest into the incentives that are essential for formalization. Reducing rigidities in regulation has a significant pay off only in the ambit of good governance. More specifically we hypothesise that degree of intensity of regulation will hardly matter in containing informality; rather what matters is the quality of governance and capability of the institutions to put the regulations into effect. Using secondary data for 46 countries over the period between 1980 and 2008, we empirically investigate into the linkages between governance, regulation and informal employment by developing static and dynamic panel data models and establish that in curbing informality what turns out to be crucial is the interaction between quality of governance and regulation.
|Item Type:||MPRA Paper|
|Original Title:||Regulation, governance and informality: an empirical analysis of selected countries|
|Keywords:||Formalization; Governance; Informal Economy; Panel data; Regulation|
|Subjects:||O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O10 - General
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth
C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C23 - Models with Panel Data; Longitudinal Data; Spatial Time Series
C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics
|Depositing User:||Punarjit Roychowdhury|
|Date Deposited:||28. Sep 2011 17:25|
|Last Modified:||12. Feb 2013 18:05|
Adaman F and A Mumcu (2010) Perceptions on Governance Effectiveness and Informality. Bogazici University, Department of Economics, Working Paper No. 2010/05. Accessed at http://www.econ.boun.edu.tr/public_html/RePEc/pdf/201005.pdf on 20th August 2011.
Amin M (2008) Labour Regulation, Employment and Informality: Evidence from the Retail Sector in India. World Bank Working Paper Series. Accessed at SSRN: http://ssrn.com/abstract=1101490 on 20th August 2011.
Aruoba S Boragan (2010) Informal Sector, Government Policy and Institutions. Working Paper, University of Maryland. Accessed at http://econweb.umd.edu/~aruoba/research/paper18/paper18.html on 20th August 2011.
Bacchetta M, Ernst E and Bustamante JP (2009) Globalization and Informal Jobs in Developing Countries. International Labor Office and World Trade Organization, Geneva: International Institute of Labor Studies and Washington: Economic Research and Statistics Division. Online version: www.ilo.org/public/english/bureau/inst/download/globalinform.pdf
Chen M A (2006) Rethinking the Informal Economy: Linkages with the Formal Economy and the Formal Regulatory Environment. In B Guha-Khasnobis et al. (ed.) Linking the Formal and Informal Economy: Concepts and Policies (New York: Oxford University Press, UNU-WIDER Studies in Development Economics and EGDI), 75—92.
Chen M A, Jhabvala R and Lund F (2001) Supporting Workers in the Informal Economy: A Policy Framework. Paper prepared for ILO Task Force on the Informal Economy
De Soto H (1989) The Other Path: The Invisible Revolution in the Third World. New York: Harper & Row
Dreher A and Schneider F (2010) Corruption and the shadow economy: an empirical analysis. Public Choice, 144: 215—238
Greene, W J (2002): Econometric Analysis (New Delhi: Pearson Education Institution)
Guha-Khasnobis B, Kanbur R and Ostrom E (2006) Beyond Formality and Informality. In B Guha-Khasnobis et al (ed) Linking the Formal and Informal Economy: Concepts and Policies (New York: Oxford University Press, UNU-WIDER Studies in Development Economics and EGDI) 1—18.
Gwartney J, Hall J and Lawson R (2010) Economic Freedom of the World: 2010 Annual Report. Vancouver: The Fraser Institute. Data retrieved from www.freetheworld.com
Hart K (2006) Bureaucratic Form and the Informal Economy. In B Guha-Khasnobis et al (ed.) Linking the Formal and Informal Economy: Concepts and Policies (New York: Oxford University Press, UNU-WIDER Studies in Development Economics and EGDI) 21—35.
Hart K (1973) Informal Income Opportunities and Urban Employment in Ghana. Journal of modern African Studies, 11(1): 61-89
ILO (1972) Incomes Employment and Equality in Kenya. Geneva: ILO
Jonnason E (2011) Government Effectiveness and Regional Variation in Informal Employment. Forthcoming in the Journal of Development Economics, Working Paper No. 2010:13, Scandinavian Working Papers in Economics. Accessed at http://swopec.hhs.se/lunewp/abs/lunewp2010_013.htm on 20th August 2011
Kanbur R (2009) Conceptualising Informality: Regulation and Enforcement. Cornell University, Department of Applied Economics and Management, Working Paper 09-11
Kar S, Marjit S and Sarkar P (2003) Trade reform, internal capital mobility and informal wage: Theory and evidence. WIDER Conference on Sharing Global Prosperity, Helsinki.
Loayza N V (1994) Labor Regulations and the Informal Economy. World Bank Policy Research Working Paper Series 1335
Loayza N V, Oviedo A M and Serven L (2006) The Impact of Regulation on Growth and Informality: Cross Country Evidence. In B. Guha-Khasnobis et al (ed) Linking the Formal and Informal Economy: Concepts and Policies (New York: Oxford University Press, UNU-WIDER Studies in Development Economics and EGDI): 121—144.
Maiti D and Marjit S (2008) Trade liberalization, production organization and informal sector of the developing countries. Journal of International Trade & Economic Development, 17(3): 453-461.
Marjit S and Kar S (2011) The Outsiders: Economic Reform and Informal Labour in a Developing Economy, (New Delhi: Oxford University Press).
Marjit S & Kar S and Beladi H (2007) Trade Reform and Informal Wages. Review of Development Economics, 11(2): 313-320.
Marjit S and Maiti D (2005) Globalization, reform and the informal sector. Research Paper 2005/12, Helsinki, United Nations University-World Institute for Development Economics Research (UNU-WIDER).
Marjit S and Beladi H (2005) Does Trade increase employment? A developing country perspective. Unpublished document, City University of Hong Kong, Hong Kong.
Rodrik D (2008) The New Development Economics: We shall Experiment, but how shall we learn? HKS Working Paper No. RWP08-055, John F. Kennedy School of Government, Harvard University, Cambridge, Massachusetts. Accessed at Available at SSRN: http://ssrn.com/abstract=1296115 on 20th August 2011.
Schnieder F (2002) Size and Measurement of the Informal Economy in 110 Countries around the World. Canberra: Australian National University, Australian National Tax Centre.
Schneider F and Klinglmair R (2004) Shadow Economies around the World: What do we Know? CESIFO Working Paper No. 1167 (Category 1: Public Finance)
Wooldridge J M (2002) Introductory Econometrics: A Modern Approach. South-Western College
Wheatly J (2010) Labour Market: Informality outweighed by benefits of good governance (6 May). The Financial Times. Accessed at http://www.ft.com/cms/s/0/df73e324-571c-11df-aaff-00144feab49a.html#ixzz1UJApWPpI on 5th August, 2011