Informal Sector Economics

Informal Sector Economics

  • Vanessa Meloni Massara added an answer:
    What is the possible strategy to foster urban formal and informal sectors linkages?

    Urban formal and informal sector relations or linkages!

    Vanessa Meloni Massara · University of São Paulo

    Dear Choen,

    In developing countries is very common informal economy generating income for the poor. But often this service does not have government permission and ends up interfering in the formal economy, selling similar products (or almost perfect copies), but much cheaper by not having to pay for taxes.

    This generates a negative vicious circle for the economy in general.

    There are two good papers about:

    Urban challenges: the formal and informal economies in mega-cities by P.W. Daniels

    Unlocking the Informal Economy: A Literature Review on Linkages  Between Formal and Informal  Economies in Developing Countries by Kate Meagher



  • Colin C Williams added an answer:
    What topics are you currently researching in relation to the informal economy?
    The aim behind this question is to encourage us to share the research topics/subjects/questions we are currently working on in order to (1) identify if there is any overlap/common themes between us and (2) to determine whether what you are researching is also applicable in other countries.

    On my part, and to start this topic, I am currently interested in policy approaches for tackling the informal economy. To do this, I am evaluating critically three competing theoretical standpoints. These are firstly, the modernisation thesis that the size f the informal economy is simply a product of the level of modoernisation of economies, secondly, the neo-liberal thesis that the informal economy is a direct result of high taxes, state corruption and burdensome regulations and controls, and therefore that economies should pursue tax reductions, de-regulation and minimal state intervention to prevent the undeclared economy from growing, and thirdly, the political economy thesis that the informal economy is a by-product of too little intervention in work and welfare regimes and that state interventions in the labour market and social protection is required. To do this, I am comparing cross-national variations in the extent and nature of the informal economy with cross-national variations in various indicators that are proxies of the above (e.g., tax rates, corruption, social protection expenditure).

    Please share your current research interests. There are well over 1000 of us with an interest in 'informal sector economics' and I am sure that many of us are researching common themes/topics/questions but do not know that we are doing so.
    Colin C Williams · The University of Sheffield

    Dear Upananda

    The relevance of  institutional theory is central to understanding the informal economy and also contextualising the issues that you noted earlier. Such problems result in an asymmetry between the formal and informal institutions in a society which is the driving force behind the decision to operate in the informal economy.


  • Colin C Williams added an answer:
    What are the key issues to consider when developing common measures to compare the success of different policy measures?
    I am currently seeking to develop common criteria to evaluate the success of different policy initiatives to tackle the informal economy. To do this, one needs to develop a common measuring rod (e.g., the cost per job moved from the informal economy into the formal economy; the tax revenue-to-cost ratio). The first thing that struck me is whether it is valid to use such criteria to evaluate a policy when it was not perhaps its original objective. The second thing is to select common criteria that can be used. What common measure/s would you use? And does anybody know any literature that discusses the issues involved in developing common measures to compare different policy initiatives?
    Colin C Williams · The University of Sheffield

    Arising out of the discussion of the above question, we have produced the attached Working Paper. I hope that readers find it useful.

  • Colin C Williams added an answer:
    What factors need to be taken into account when evaluating the cross-national transferability of policy initiatives?
    I am currently struggling to develop a methodology to evaluate the feasibility of transferring policies from one nation to another where they may be suitable. In my case, these are policy measures to tackle the informal economy. Does anybody know any literature which discusses the factors that need to be taken into account when evaluating the feasibility of transferring a policy from one nation to another?
    Colin C Williams · The University of Sheffield

    For those of you who answered this question, I am very grateful. We eventually wrote a report on the issues involved in assessing the cross-national transferability of policy measures (in the sphere of tackling undeclared work). I think that it has wider lessons for other policy realms. I attach it and I hope that you find it useful.

    Once again, thank you to everybody who has been so helpful in enabling us to answer this question.

  • Muhammad Shehryar added an answer:
    What practical measures can be taken to improve the tax morality of populations?
    With the growing recognition that using deterrents to prevent informal work and incentives to encourage formal work is a costly and ineffective way to promote formalisation, many governments are seeking to pursue the 'softer' approach of engendering a culture of commitment to formality through educating people about the reasons for paying taxes, showing populations what they receive for paying their taxes, etc. Until now, however, there has been little discussion of what works and what does not, and whether there are 'good practice' approaches that could be more widely adopted. Given that this seems to be the current direction of policy on tackling the informal economy, we need to discuss and identify how this can be done in practice. In doing so, we might be able to identify some practical measures governments and other social partners can adopt to engender this culture of commitment to formality.
    Muhammad Shehryar · Lahore University of Management Sciences
    Apart from your perception about the use of public funds by the government, which is most certainly an important factor in this connection, what I have found that there is a significant part of your tax morality which is rather undermined by the tax morality of your customer who at times does not want a formal receipt of purchase for his own benefits and hence bear an adverse effect on your personal tax morality as well. Then how much you respect the prevailing law also has a strong correlation with how much it is respected by your neighbouring shop/factory and ultimately by the whole market/industry. So it is very much a possibility that despite having a positive perception about how the public finds are invested by the government, you are strongly influenced by the demands and practices of your customers and competitors respectively.
  • Eghosa Igudia added an answer:
    What are the reasons for advocating that people should be allowed to work in the informal economy?
    In recent years, there has been a shift from a policy approach that seeks to eradicate the informal economy and move towards an approach that seeks to enable the formalisation of informal work. However, there is a small emergent view that people should be left alone to work in the informal economy. What are the possible rationales for this policy approach?
    Eghosa Igudia · The University of Northampton
    I agree with most of the postings here. Results emerging from my study of the Nigerian informal economy shows that people engage in the informal economy for many reasons. These provide justifications for allowing these individuals to work in the informal economy. #link to this work shall be provided, as soon as it is published #
  • Bradut Vasile Bolos added an answer:
    What are the best policy measures used to tackle the informal economy in south-eastern Europe?
    Given the nature of the informal economy in south-eastern Europe, and the socio-economic context, I am interested in finding policy measures that can be used to formalise the informal economy in this region. I am just starting a four year European Commission funded project on this subject
    Bradut Vasile Bolos · University of Buraimi
    However, most of my work is unpublished, and will remain so until i get proper funding for empiric research. And i needed funding to get the data for proving my theory.
  • Anjula Gurtoo added an answer:
    Is work in the informal economy mostly conducted by those living in poverty?
    I have recently conducted a review of the relationship between the informal economy and poverty so as to understand whether the informal economy helps those who are poor to escape their poverty and how to address the informal economy in anti-poverty strategies [See attached]. This review focused upon the situation in the United Kingdom. What surprised me was that little evidence was available on the relationship between the informal economy and poverty.
    Does anybody know of any studies on the relationship between poverty and the informal economy? What do you think is the relationship in other countries? Is work in the informal economy largely undertaken by the poor? Does it help them escape their poverty? What should be done about the poor who work in the informal economy?
    Anjula Gurtoo · Indian Institute of Science
    Poverty exists in India, in general...informal economy as well as formal economy. The number of low income households are significantly high in the country. Is there a direct relationship between poverty and informality, I dont think so. Causes of poverty cannot be directly attributed to informality or vice versa. I think one is just part of the other, and not initiate or trigger each other.
  • Anamika P. added an answer:
    To what extent can the development of various sub-fields of economics be seen as genuine breakthrough and not merely passing fads?
    This is in light of development of fields like neuroeconomics,health economics,environment economics, etc.
    Anamika P. · Monk Prayogshala
    Yes sir,given their nascent stages,time shall be the best judge.Thank you.
  • Colin C Williams added an answer:
    Looking for publications about reducing the informal, black, shadow economy!
    Thanks in advance.
    Colin C Williams · The University of Sheffield
    Read Tackling the undeclared economy in the European Union by myself and Piet Renooy.
  • Nikolay Kryachkov added an answer:
    What are the best policy measures to use to tackle the informal economy in south-eastern europe?
    Given the nature of the informal economy in south-eastern Europe, and the socio-economic context, I am interested in finding policy measures that can be used to formalise the informal economy in this region. I am just starting a four year European Commission funded project on this subject
    I think it's impossible. Even The Ottoman Empire couldn't do that for centuries.
  • Colin C Williams added an answer:
    Global Economic and Financial crisis and the Informal Sector
    What implications do the present global economic and financial crisis have for the informal sector in developing nations?
    Colin C Williams · The University of Sheffield
    Some recent research in Europe by Friedrich Schneider shows that the shadow economy has declined over the years of the crisis. The suggestion is that it is not a substitute for the formal economy but acts cyclically alongside it
  • Colin C Williams added an answer:
    Current Research on the Informal Economy
    What current research are you working on and what are your expected results and contributions to knowledge?
    Colin C Williams · The University of Sheffield
    One fascinating piece of research which will never be published is the link between tax avoidance and tax evasion. I analysed a UK dataset and showed that there is NO relationship between the concerns about tax avoidance by major corporations and the tax evasion behaviour of small businesses. A very important finding but as I say, it will never be published
  • Colin C Williams added an answer:
    How can we improve access to funds in the informal market of South Africa?
    Most of black business people in South Africa are involved in the informal business and have difficult in accessing funds.
    Colin C Williams · The University of Sheffield
    There are many articles on micro-finance as a route to aid informal sector businesses ad this is the focus of a vast literature. Perhaps the appropriate question, however, is whether this is the solution that should be focused upon when attempting to improve the working conditions of people in the informal economy. Perhaps the solution is not so much purely one of throwing some money at them and hoping that this will help them develop and more one of a more holistic approach to facilitating their development of informal sector entreprises
  • Sidharta Chatterjee added an answer:
    Economies in the Shadows: The Informal Sector Economies, Street Markets, Roadside Enterprises.
    According to some statistics, half of today's workforce about 1.8 billion people earn their living on the streets, off the books. According to the OECD, it is estimated that that by 2020 this "informal sector economy" will include two-thirds of the world's labor force. What is you view regarding such a sector which lurk in political & economic shadows?
    Much Thanks for your reference Dr. Williams. Yes, the point perhaps you meant is exploitation of labor in the informal sector, illegal jobs, wage exploitation (underpaid), child labor, and workers rights which are not enforced in the informal sector, when compared to the formal sector. The paper you suggested is interesting and seems to highlight these issues, I am going through it in some detail.

  • How can I make an analysis of the productivity in the informal sector?
    Informal economy, efficiency and productivity.
    Nisantha Kurukulasooriya Ajith · University of Ruhuna
    It is not clear what you are going to do. better to describe a little bit of you study. I can help u in the analysis of efficiency with parametric or nonparametric approach.
  • Elizabeth Wilke added an answer:
    LTTE (Sri Lanka) budget, finances, arms flows
    I am a postgraduate student looking for information on the LTTE (Sri Lanka) budget, finances, arms flows or related. I am currently writing my MSc. dissertation on the potential uses of non-discriminated violence as a fundraising instrument in Diaspora funded insurgencies.

    Focusing on the LTTE's case for various reasons my main problem is to be able to estimate the budget of the LTTE as this is a key variable in my analysis; being able to break down the budget to the military procurement budget of the LTTE would be ideal, even though it is unlikely.
    As gathering information on the subject is quite difficult I would gladly take any advice on where to find this information or on how to potentially extract this information from existing datasets; suggestion on proxies (and where to find them) would also be greatly appreciated. Information on informal value transaction practices used in the Tamil Diaspora, such as Undiyal or Cheetu can also be useful if in direct relation to the LTTE.

    Thank you.
    Elizabeth Wilke · Millenium Challenge Corporation
    Theresa Flanigan has done excellent work on the Tamil Tigers. I strongly suggest you read her dissertation work, and contact her to see if she can provide additional resources for you.
  • Stavroula Bougadi added an answer:
    The connection between economy and crime or better criminality is an old query. What do you think about? Are they related?
    For example , the economic recession effect crime ? and what form of crime?

    Stavroula Bougadi · Panteion University of Social and Political Sciences
    Dear Dietmar,
    Thank you very much for the sources . I have n;t seen yet , i am busy these days.... but if you find anything about i will really appreciate your aid!
    Anyway, you are right about poor and rich criminals. In my opinion the more dangerous are the rich and qualified person who commit very serious crime , even against humanity (it;s called 'white collar crime', as polution,corruption,economic frauds etc) the poor just steal some goods , ofcourse there are the Killers , but they don;t kill more than the auto or drugs and medical manufacturies which kill thousads 'by accident' (eg. broken brakes , or side effects of drugs).

    However , because the connection between economy and crime and criminal justice exists ofcourse - economy is a social institution , maybe the most important in nowadays, and i am just a social researcher who try to find out what happen here, i just compare the general economic situation (GDP per capita, unemployment rates, ...) with crime rates and i try to discover the connection -if exist -as other research show. So any idea about is wellcame!

    Thanks again and have a nice weekend!
  • Isaiah Oluranti Olurinola added an answer:
    Required Guidance for a new researcher
    I am entering first time in any type of research of economics. what should lear or study for it?
    Isaiah Oluranti Olurinola · Covenant University Ota Ogun State, Nigeria
    Manzoor, How are you? You must have gone very far in your research now. Right?
  • Isaiah Oluranti Olurinola added an answer:
    Energy for the Informal Sector
    Have you thought of Energy as being one of the biggest challenges impeding the growth of the informal sector in developing countries?
    Isaiah Oluranti Olurinola · Covenant University Ota Ogun State, Nigeria
    Bosco, given your view on energy and its implications for the informal sector, do you think that the current global economic crises have implications for the availability of energy to the informal sector, especially in developing nations?

About Informal Sector Economics

The informal sector or informal economy as defined by governments, scholars, banks, etc. is the part of an economy that is not taxed, monitored by any form of government, or included in any gross national product (GNP), unlike the formal economy. Also called the Black Market, Shadow Markets, Underground Markets and Economies.

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