nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2013‒05‒11
seven papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. A Multidimensional Perspective of Poverty, and its Relation with the Informal Labor Market: An Application to Ecuadorian and Turkish Data. By Armagan Tuna Aktuna Gunes; Carla Canelas
  2. Heterogeneity in the Egyptian informal labour market: choice or obligation?. By Rawaa Harati
  3. “Double Penalty in Returns to Education: Informality and Educational Mismatch in the Colombian Labour market” By Paula Herrera; Enrique López-Bazo; Elisabet Motellón
  4. Informality and profitability : evidence from a new firm survey in Ecuador By Medvedev, Denis; Oviedo, Ana Maria
  5. The Determinants of Informality in Mexico's States By Sean Dougherty; Octavio Escobar
  6. A helping hand or the long arm of the law ? experimental evidence on what governments can do to formalize firms By de Andrade, Gustavo Henrique; Bruhn, Miriam; McKenzie, David
  7. Offshore jurisdictions (including Cyprus), corruption money laundering and Russian round-trip investment By Svetlana Ledyaeva; Päivi Karhunen; John Whalley

  1. By: Armagan Tuna Aktuna Gunes (Centre d'Economie de la Sorbonne - Paris School of Economics); Carla Canelas (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: In this paper, we study the links between time use, informal labor market, and poverty measures in two countries that strongly differ on their level of development, by means of a multidimensional poverty index, and a bivariate probit model to assess the changes in the joint probability of working in the informal sector while being considered poor.
    Keywords: Poverty, informality, time use.
    JEL: D0 D3
    Date: 2013–03
  2. By: Rawaa Harati (Centre d'Economie de la Sorbonne)
    Abstract: This paper provides historical and empirical arguments that can explain the development of the Egyptian informal sector. After recalling the various approaches proposed in the literatures, it identifies the configuration that overrides the Egyptian labor market by allowing for the heterogeneity of informal jobs and therefore the existence of different segments within the informal sector using a mixture model. It concludes that the Egyptian informal labor market in 2006 was composed of two segments with a distinct wage equations. This may point to the existence of barriers to entry to each sector, e.g. fixed cost related to social stigma which prevent people from working in the sector which offers them the highest expected wage.
    Keywords: Informal market, development economics, finite mixture model, Egypt, segmentation, selection bias.
    JEL: O17 J42
    Date: 2013–03
  3. By: Paula Herrera (Faculty of Economics, University of Barcelona); Enrique López-Bazo (Faculty of Economics, University of Barcelona); Elisabet Motellón (Faculty of Economics, University of Barcelona)
    Abstract: This paper examines the returns to education taking into consideration the existence of educational mismatches in the formal and informal employment of a developing country. Results show that the returns of surplus, required and deficit years of schooling are different in the two sectors. Moreover, they suggest that these returns vary along the wage distribution, and that the pattern of variation differs for formal and informal workers. In particular, informal workers face not only lower returns to their education, but suffer a second penalty associated with educational mismatches that puts them at a greater disadvantage compare to their formal counterparts.
    Keywords: Educational Mismatch; Formal/Informal Employment; Economic Development; Wage Gap. JEL classification: O17; J21; J24.
    Date: 2013–05
  4. By: Medvedev, Denis; Oviedo, Ana Maria
    Abstract: This paper estimates the impact of informality on firm profits using a new firm-level survey designed specifically for this study. The survey was administered to about 1,200 firms with 50 employees or less in Ecuador's two largest cities, Quito and Guayaquil, plus two main centers of economic activity near the northern and southern borders. The paper's results confirm that the extent of firms'compliance with a set of regulatory requirements is linked to the perceived costs and benefits of informality, such as the probability of detection by the authorities and the likelihood of being fined. Nonetheless, taking into account the non-random placement of firms along the formality-informality spectrum and controlling for a large set of firm, owner, and location characteristics, the paper finds that more formal firms tend to be more profitable and have higher output per worker. This impact operates, inter alia, through more formal firms'ability to obtain improved access to credit and achieve higher sales by issuing receipts to clients.
    Keywords: Access to Finance,Microfinance,E-Business,Banks&Banking Reform,Debt Markets
    Date: 2013–05–01
  5. By: Sean Dougherty; Octavio Escobar
    Abstract: Informality has important implications for productivity, economic growth, and the inequality of income. In recent years, the extent of informal employment has increased in many of Mexico's states, though highly heterogeneously. The substantial differences across states in terms of informal employment can be helpful in explaining differences in economic growth outcomes. This paper studies the determinants of informal employment using states' diverging outcomes to identify causal factors, taking into account potential endogeneity. The results suggest that multiple factors explain differences in informal employment across states, including per capita income, the quality of labour skills, differences in the prevalence of microenterprises, the cost to start a business, restrictions on foreign investment, the rule of law and incidence of corruption.<P>Les déterminants de l'informalité dans les États du Mexique<BR>L’informalité a des implications importantes sur la productivité, la croissance économique et l’inégalité des revenus. Ces dernières années, la mesure de l’emploi informel a augmenté dans la plupart des États du Mexique, bien que de manière très hétérogène. Les différences importantes entre les États en matière d’emploi informel peuvent être utiles pour expliquer les différences dans les résultats de la croissance économique. Cet article étudie les déterminants de l’emploi informel en utilisant les résultats divergents des États pour identifier les facteurs causaux, en tenant compte de l’endogénéité potentielle. Les résultats suggèrent que plusieurs facteurs expliquent les différences dans l’emploi informel à travers les États, y compris le revenu par habitant, la qualité de la main-d’oeuvre, les différences dans la prévalence des microentreprises, le coût pour démarrer une entreprise, les restrictions sur les investissements étrangers, l’État de droit et l’incidence de la corruption.
    Keywords: informal employment, microenterprises, regulatory policy, sub-national policy analysis, politique de réglementation, emploi informel, micro-entreprises, analyse politique sous nationale
    JEL: J21 O17 O54
    Date: 2013–04–11
  6. By: de Andrade, Gustavo Henrique; Bruhn, Miriam; McKenzie, David
    Abstract: Many governments have spent much of the past decade trying to extend a helping hand to informal businesses by making it easier and cheaper for them to formalize. Much less effort has been devoted to raising the costs of remaining informal, through increasing enforcement of existing regulations. This paper reports on a field experiment conducted in Belo Horizonte, Brazil, in order to test which government actions work in getting informal firms to register. Firms were randomized to a control group or one of four treatment groups: the first received information about how to formalize; the second received this information and free registration costs along with the use of an accountant for a year; the third group was assigned to receive an enforcement visit from a municipal inspector; while the fourth group was assigned to have a neighboring firm receive an enforcement visit to see if enforcement has spillovers. The analysis finds zero or negative impacts of information and free cost treatments, and a significant but small increase in formalization from inspections. Estimates of the impact of actually receiving an inspection give a 21 to 27 percentage point increase in the likelihood of formalizing. The results show most informal firms will not formalize unless forced to do so, suggesting formality offers little private benefit to them. But the tax revenue benefits to the government of bringing firms of this size into the formal system more than offset the costs of inspections.
    Keywords: Microfinance,E-Business,Small Scale Enterprise,Knowledge for Development,Information Security&Privacy
    Date: 2013–05–01
  7. By: Svetlana Ledyaeva; Päivi Karhunen; John Whalley
    Abstract: In this paper we analyze the link between corruption money laundering and round-trip investment via offshore jurisdictions utilizing Russian firm-level data. In particular we empirically explore location strategies of round-trip investors (namely, from Cyprus and British Virgin Islands) across Russia and compare them with the benchmark group of genuine foreign investors in Russia. We further study the determinants of the fraction of round-trip investment in total foreign investment in Russian regions. We find that round-trip investors tend to locate in more corrupt Russian regions than their genuine foreign counterparts and the fraction of round-trip investment is also significantly higher in corrupt regions. Taking into account that a large fraction of round-trip investment in Russia is concentrated in real estate and financial sectors, our results point to the conclusion that there is a strong link between round-trip investment and corruption money laundering.
    JEL: F21 F23
    Date: 2013–05

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