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on Informal and Underground Economics |
| By: | Axel Dreher; Pierre-Guillaume Méon; Friedrich Schneider |
| Abstract: | This paper assesses the relationship between institutions, output, and productivity when official output is corrected for the size of the shadow economy. Our results confirm the usual positive impact of institutional quality on official output and total factor productivity, and its negative impact on the size of the underground economy. However, once output is corrected for the shadow economy, the relationship between institutions and output becomes weaker. The impact of institutions on total (“corrected”) factor productivity becomes insignificant. Differences in corrected output must then be attributed to differences in factor endowments. These results survive several tests for robustness. |
| Keywords: | shadow economy; income; aggregate productivity; development accounting |
| JEL: | O11 O17 O47 O50 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/118565&r=iue |
| By: | Mazhar , Ummad |
| Abstract: | This paper replicates the Johnson et al.’s (1998) empirical analysis of the affects of regulatory discretion on the unofficial economy. The narrow replication uses the data set of the original study which comprises of 49 countries for the year 1997. The wide replication is performed in two ways. Firstly, I investigate the original authors’ results using a larger data set of 162 countries and for a period from 1999 to 2007. Secondly, I use Arellano and Bond estimator to investigate the dynamics and causal effects. In both types of replications the results are similar to those in the original study. However, the estimates using Arellano and Bond estimator exhibit autocorrelation of order greater than 1 in the error term and are unable to pass the overidentifying restrictions test. |
| Keywords: | Unofficial or Shadow economy; Corruption; Replication; Regulation; Arellano and Bond estimator; Panel Data |
| JEL: | K20 O17 C23 L50 C33 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:39030&r=iue |
| By: | Paul Maarek (THEMA, Universite de Cergy-Pontoise) |
| Abstract: | This paper aims to understand the pattern of the labor share of income during the devel- opment process. We highlight a U-shapped relationship between development and the labor share. Our theory emphasizes the interplay between rms'monopsony power and the size of the informal sector when the formal labor market has frictions. The size of the informal sector parameterizes workers'outside opportunities in wage setting. In the rst stage of development, productivity gains are not compensated by wage increases, as most of workers'outside opportunities depend on the in- formal sector whose productivity remains unchanged. The labor share decreases as a result. In the second stage of development, outside opportunities rely more on productivity in formal rms as the formal sector expands. Consequently, the labor share increases. We then use a policy experiment, namely capital account liberalization episodes, in order to determine the causal impact of economic development on the labor share. |
| Keywords: | Development ; Informal sector ; Labor share ; Matching frictions |
| JEL: | E25 J42 O17 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2012-34&r=iue |
| By: | Roxana Maurizio |
| Abstract: | Abstract Analysis of labour informality is very relevant in Latin America. More than half of all workers in the region are employed in informal activities, mainly as ownaccount workers or wage earners in small enterprises. A similar percentage of people work in jobs not registered in the social security system. The aim of this paper is to analyse two important aspects related to informality from a comparative point of view. The first is the association of informality, labour precariousness and income segmentation. The second is the relationship between informality and poverty. In order to conduct this study, four countries were selected – Argentina, Brazil, Chile and Peru – whose informal sectors and informal employment are significantly different from each other. Data used in this paper come from household surveys with the most recent available information. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bwp:bwppap:16512&r=iue |
| By: | Aysýt Tansel (Middle East Technical University); Elif Öznur Kan (Cankaya University) |
| Abstract: | In this study, we examine the formal/informal sector earnings differentials in the Turkish labor market using detailed econometric methodologies and a novel panel data set drawn from the 2006-2009 Income and Living Conditions Survey (SILC). In particular, we test if there is evidence of traditional segmented labor markets theory which postulates that informal workers are typically subject to lower remuneration than similar workers in the formal sector. Estimation of standard Mincer earnings equations at the mean using OLS on a pooled sample of workers confirms the existence of an informal penalty, but also shows that almost half of this penalty can be explained by observable variables. Along wage/self-employment divide, our results are in line with the traditional theory that formal-salaried workers are paid significantly higher than their informal counterparts. Confirming the heterogeneity within informal employment, we find that self-employed are often subject to lower remuneration compared to those who are salaried. Moreover, using quantile regression estimations, we show that pay differentials are not uniform along the earnings distribution. More specifically, we find that informal penalty decreases with the earnings level, implying a heterogeneous informal sector with upper-tier jobs carrying a significant premium and lower-tier jobs being largely penalized. Finally, fixed effects estimation of the earnings gap depict that unobserved individual fixed effects when combined with controls for observable individual and employment characteristics explain the pay differentials between formal and informal employment entirely, thereby implying that formal/informal segmentation may not be a stylized fact of the Turkish labor market as previously thought. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:tek:wpaper:2012/23&r=iue |
| By: | Yuki, Kazuhiro |
| Abstract: | In the post-WWII era, most developing economies had decent economic growth, but, with current growth trends, the great majority of them are unlikely to transform into developed economies in near future. In these economies, the dual economic structure, the coexistence of the modern/formal sector and the traditional/informal sector, is persistent. The educational level of the population increased greatly, but the growth of the skill level, especially when measured by the share of high-skill workers, is relatively modest. Wage inequality between workers with basic skills and with advanced skills rose over time, while the inequality between workers with and without basic skills fell greatly. In order to understand these facts, this paper develops a dynamic dual-economy model and examines how the long-run outcome of the economy depends on the initial distribution of wealth and sectoral productivity. It is shown that, for fast transformation into a developed economy, the initial distribution must be such that extreme poverty is not prevalent and the size of ”middle class” is enough. If the former is satisfied but the latter is not, which would be the case for many developing economies falling into ”middle income trap”, the fraction of workers with basic skills and the share of the modern sector rise, but inequality between workers with advanced skills and with basic skills worsens and the traditional sector remains, consistent with the above-mentioned facts. |
| Keywords: | dual economy; modernization; education; wealth distribution |
| JEL: | J31 O17 O15 |
| Date: | 2012–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:39062&r=iue |
| By: | José I. Silva (Universitat de Girona); Javier Vázquez-Grenno (Universitat de Barcelona & IEB) |
| Abstract: | This paper aims to shed some light on the dynamics of the Spanish labor market, using data from the Spanish Labor Force Survey for the period 1987 to 2010. We examine transition rates in a three-state model and compare our results with those reported for the UK and the US. Explicitly introducing the employment duality present in the Spanish labor market, we study labor market dynamics in a four-state model set-up. We also analyze the behavior of these rates within two sub-periods of recession and a further two sub-periods of boom. We provide evidence of the cyclicality of the transition rates using unconditional and conditional correlations. Finally, we compute the contribution of the different transitions to unemployment rate volatility. Our over-all conclusion points out that the employment duality is the key to understand the unemployment volatility and the functioning of the Spanish labor market. |
| Keywords: | Job finding rate, job separation rate, unemployment |
| JEL: | E24 E32 J6 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:2012/5/doc2012-17&r=iue |
| By: | Silva, José I. (Campus de Montilivi, 17071 Girona, Spain); Vázquez-Grenno, Javier (Av. Diagonal 690, 08034 Barcelona, Spain) |
| Abstract: | This paper aims to shed some light on the dynamics of the Spanish labor market, using data from the Spanish Labor Force Survey for the period 1987 to 2010. We examine transition rates in a three-state model and compare our results with those re- ported for the UK and the US. Explicitly introducing the employment duality present in the Spanish labor market, we study labor market dynamics in a four-state model set-up. We also analyze the behavior of these rates within two sub-periods of recession and a further two sub-periods of boom. We provide evidence of the cyclicality of the transition rates using unconditional and conditional correlations. Finally, we compute the contribution of the dierent transitions to unemployment rate volatility. Our over- all conclusion points out that the employment duality is the key to understand the unemployment volatility and the functioning of the Spanish labor market. |
| Keywords: | job finding rate; job separation rate; unemployment |
| JEL: | E24 E32 J60 |
| Date: | 2012–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uulswp:2012_012&r=iue |
| By: | Nunoo, Jacob; Andoh, Francis K. |
| Abstract: | Promoting a dynamic operating environment for Small Medium scale enterprises (SMEs) is seen as a priority amongst economic development goals, in both developed and emerging economies. SMEs are a primary driver for job creation and GDP growth. They greatly contribute to economic diversification and social stability and they play an important role for private sector development. It must be emphasized, that the utilization of these financial products does not only promote the growth of the SMEs themselves but also their active participation in the financial services market leads to financial development which is widely recognized as an important determinant of economic growth and also recognized as important for enhancing the social and economic impact of the financial sector. In the past, SMEs, particularly, in developing countries, lacked access to financial products and services. The SME market was perceived by banks as risky, costly, and difficult to serve. However, with the advances in information and communications technology, the cost differential of serving poor customers has fallen and banks now perceive significant opportunities in the SME sector. Survey data from multiple studies show that banks have begun to target SMEs as a profitable segment. For example, a recent survey of 91 banks in 45developed and developing countries – Bank Financing for SMEs around the World – found that these banks overwhelmingly perceived the SME sector as a large market with good prospects. There exists an array of financial products - microcredit, savings, and loans, insurance, mutual funds, etc. – in both the formal and informal sectors in Ghana. Opportunities to utilize these financial services are now plentiful than about a decade ago. However, available studies have shown that about 44% of Ghanaians are financially excluded and have/use no financial products. This paper uses a direct measure of financial knowledge to empirically investigate the linkage between financial literacy and utilization of financial services by SMEs. However, since people’s level of knowledge can improve through utilization of financial service, we establish a bi-causality problem. In the analysis, two equations were estimated: (1) financial literacy level, and (2) utilization of financial service which includes financial literacy as an endogenous variable. The equation determining the level of financial literacy was estimated using the OLS while the equation for the utilisation of financial service was estimated using logistic regression. The IV method was used to correct for the problem of endogeneity. Overall, the results show that there was modest level of financial literacy among small and medium entrepreneurs in Ghana. Moreover, it was discovered that the better and more financially literate entrepreneurs were more likely to utilize financial service. The most commonly utilized financial service was operating a bank account. This has important policy implication. Finally, the instrument for financial literacy, recipient of financial education, also had positive relationship with utilization of financial service. |
| Keywords: | small and medium scale enterprises, financial literacy, utilization, Agricultural Finance, Financial Economics, Research Methods/ Statistical Methods, Q14, M20, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea12:123418&r=iue |