Informal Sector Economics

Informal Sector Economics

  • Jouko Antero Kinnunen added an answer:
    How can we measure the impact of 'Shadow Economy'?

    I am willing to explore an empirical study on shadow economy in Nepal. Nepal currently experiencing double obstructions: one from the 'Madhesh based parties through road strikes; another from the Indian unofficial blockade. As a consequences the supply is heavily dropped and the price take-off. Now, there is substantial growth of 'shadow economy' in Nepal. However, Government of Nepal has intervened the growing 'shadow economy' but the actions are not enough to stop the new growing rom environment for 'shadow economy' as there is consistent demands from overwhelming public specially goods are fuels and energy like petrol and cooking gas. 

    In order to explore the growing market failure, I am willing to know how to measure the market inefficiencies and how to measure 'shadow economy'? 

    Jouko Antero Kinnunen

    Dear Pankaj,

    in order to measure the impact of shadow economy you need both to have a grasp of its size, and what kind of micro and macro mechanisms are at work between the formal and informal part of the economy. I would thus resort to a Computable General Equilibrium modelling (or something similar) in order to gauge the effects of shadow economy. Attached please find a couple of links I found after two minutes of googling. Many, if not all national statistical institutes do have a requirement to make an assessment of the size of informal economy as part of their national accounts production.

    Best regards,


  • Artur Braun 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.
    Artur Braun

    Hire tax investigators loyal to the state, make tax investigations, fine those who make tax fraud. Punish those who are corrupt.

  • Anja Wessels added an answer:
    Is there any research on the measurement of ILO labour trafficking indicators?

    Dear fellow researchers,

    Is there any research on the measurement of indicators of trafficking of adults for labor exploitation, as specified by the International Labour Organization (ILO, see link for further info), particularly when it comes to the systematic assessment of these indicators in migrant populations?

    Thank you in advance for any help and input,


    Anja Wessels

    Dear colleagues,

    Thank you very much for your valuable input! HOME's research report on labor trafficking in Singapore will will be uploaded here once ready.

    Kind regards, Anja

  • Anuradha Rajivan added an answer:
    How can people living in Slum areas be considered as contributors to the formal Sector of economy and how can we calculate it?

    For Example, an area is considered as notified slums but after many decades it developed but still considered as slum. The people may be working in formal sector. So how can we differentiate them. Whether we have to consider them as slum people as well as informal sector or formal & non slum?

    Anuradha Rajivan

    A survey among informal settlement dwellers (slum) can reveal what type of economic activities they undertake. Even though they may reside in informal settlements, without access to municipal services, they do undertake activities that are counted in the GDP. They also undertake activities that are not counted (domestic maid, child worker).

    A slum dweller's place of work may not be in a slum - e.g., office clerk, restaurant waiter, hairdresser, tailor - in that case it will be automatically counted.

    A slum dweller purchases food, clothes, cigarettes, may pay school fees for children, eat in a local dhaba, alcohol, cinema, hospital/medicines - these are also economic transactions influencing GDP.

    Many of the expenses also contribute to taxes (sales tax / excise) that go to the government.

    So while non-formal econoci activities may not be counted, there is also a significant amount of formal economic activity also.

  • Choen Krainara added an answer:
    What is the possible strategy to foster urban formal and informal sectors linkages?

    Urban formal and informal sector relations or linkages!

    Choen Krainara

    Thank you Professor Colin for your kind response. In developing countries in Asia, and to be specific like in Thailand, many informal sector entrepreneurs have wide ranges in size, i.e. micro, self-owned or small enterprises. They are rather weak in terms of opeartion, access to credit and finance, marketing and management depending on its size.But they are important source of employment and economic growth. Their growth is quite isolated from the urban formal sector. It would be helpful if they can establish linkages with formal sector. If so, how can they do to foster this connection?

  • Colin C Williams 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
    Colin C Williams

     Dear Emanuel

    Thank you so much for taking the time to post this detailed response. It is very useful. You are undertaking some very interesting work on this subject and I hope that we have the opportunity to meet again sometime in the future. Yes, I remember meeting you at GIKA.


  • Sanda Kaufman 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?
    Sanda Kaufman

    This was one of the more interesting and informative discussions I have followed on ResearchGate! Thank you contributors!

  • Paul Koszarny added an answer:
    Why is the notional amount of derivative market almost 20 times the global GDP?

    The derivative market is supposed to support the real economy but how come the notional amount is so large? Does it related to the low interest rate in US, huge CDOs or shadow banking problems? Thank you.

    Paul Koszarny

    As @Chris Kelly said we encounter difficulties in predicting the future behavior of financial systems. Predictions for financial systems are difficult in general. People who tend to anchor to linearities, suffer losses on nonlinearities. Chaotic systems can change at an exponential rate owing to some perturbations in the system. Those perturbations can be known the moment they emerge, they are large, certainly not some kind of legendary "butterflies" from Brasil causing a tornado in the Gulf of Mexico. Vulnerable? Study liquidity and volatility. At the core of the problem with capitalism lies the problem of units that are different than individuals. We cannot judge units like individuals with shame, natural ethics, pity, sense of honor, generosity. A corporation is not a human being and generally is a limited liability corporation. Its sole mission is the satisfaction of some metric imposed by analysts. The big issue is that depriving systems of volatility harms them, causing eventually greater volatility of the cascading type. That's exactly what happened with the CHF versus the euro. The SNB deprived EURCHF of volatility for too long, paradoxically exaggerating the problem manifold, transferring fragility from the collective to the unfit. It was not difficult to foresee how vulnerable the system could be. The attached chart clearly shows the qualitative difference between the volatility before January 15 and after.           .     

  • 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

    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

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

    • Source
      [Show abstract] [Hide abstract]
      ABSTRACT: This working paper is part of a series of deliverables within the project entitled ‘GREY – Out of the shadows: developing capacities and capabilities for tackling undeclared work in Bulgaria, Croatia and FYR Macedonia’ (‘GREY’), funded by the European Commission’s Framework 7 Industry-Academia Partnerships Programme (IAPP). The objective of this project is to provide concrete policy recommendations about what policies may work better in tackling the undeclared economy in two new EU Member States (Bulgaria and Croatia) and a candidate country (FYR Macedonia). In particular, the objectives of our project are to: • Conduct a comprehensive review of the policy approaches and measures being used to tackle undeclared work. • Empirically evaluate the measures for facilitating the shift of undeclared work into the declared economy in the selected target region. • Based on the results of the first two objectives, to recommend possible new policy approaches and measures (or endorse old ones) that will facilitate the shift of undeclared work into the declared economy. The aim of this Working Paper No. 5 is to provide a preliminary assessment of the appropriateness of possible policy approaches for tackling undeclared work as well as their transferability to three target countries: Bulgaria (BG), Croatia (HR) and FYR Macedonia (FYROM). Successful policy transfer and cross-national policy learning should be informed by prospective policy analysis and testing the features of the specific program against the specifics of the local context and circumstances. In line with the ultimate project objective to provide concrete policy recommendations for more efficient and effective policies towards formalisation of undeclared work, this paper serves an important role, for it aims at establishing criteria and processes through which potential policy adopters can identify promising policies used elsewhere to tackle similar problems and assess their ‘goodness of fit’ prior to adaptation to local realities.
      Report number: GREY Working Paper No. 5, Affiliation: Sheffield University Management School, University of Sheffield
  • 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
    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
    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
    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.
    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
    Read Tackling the undeclared economy in the European Union by myself and Piet Renooy.
  • 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
    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
    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
    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?
    Sidharta Chatterjee
    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.

  • Nisantha Kurukulasooriya Ajith added an answer:
    How can I make an analysis of the productivity in the informal sector?
    Informal economy, efficiency and productivity.
    Nisantha Kurukulasooriya Ajith
    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
    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
    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
    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
    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.

Topic followers (1,388) See all