Informality, corruption and trade reform

Sugata Marjit, Sudeep Ghosh, Amit Biswas

Research output: Journal article publicationJournal articleAcademic researchpeer-review

22 Citations (Scopus)

Abstract

Stringent regulations coupled with corruption generate and sustain extra legal or informal transactions in developing countries. Does trade related reform discourage informal activities and corruption? This paper attempts to analyze such a phenomenon. An import competing firm allocates production between a high wage formal and a low wage informal segment. Illegal use of labor in the informal sector is characterized by a probability of punishment which depends on the size of the informal output. In such a structure, as the tariff comes down total employment contracts, but the informal sector expands. However, lowering of interest rate, possibly through the liberalization of capital account, tends to reduce the size of the informal segment. Hence, trade reforms may have conflicting impact on informality and corruption.
Original languageEnglish
Pages (from-to)777-789
Number of pages13
JournalEuropean Journal of Political Economy
Volume23
Issue number3
DOIs
Publication statusPublished - 1 Sep 2007
Externally publishedYes

Keywords

  • Corruption
  • Informal sector
  • Trade liberalization

ASJC Scopus subject areas

  • Economics and Econometrics

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