nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2014‒01‒17
nine papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Informality and long-run growth By Frédéric DOCQUIER; Tobias MÜLLER; Joaquín NAVAL
  2. Inputs, Gender Roles or Sharing Norms? Assessing the Gender Performance Gap Among Informal Entrepreneurs in Madagascar By Christophe Nordman; Julia Vaillant
  3. Employment Status, Income Equality, and Poverty in Egypt By Abd El Hamid Ali, Hoda
  4. Male, migrant, muslim : Identities and entitlements of Afghans and Bengalis in a South Delhi neighbourhood By Chakraborty, M.
  5. Linking the poor to new modalities in service delivery. Partnership innovations in solid waste management in Bogotá, Colombia By Turcotte, I.; Gomez, G.M.
  6. Savings by and for the Poor: A Research Review and Agenda-Working Paper 346 By Dean Karlan, Aishwarya Lakshmi Ratan, Jonathan Zinman
  7. Household debt and social interactions By Georgarakos, Dimitris; Haliassos, Michalis; Pasini, Giacomo
  8. International Human Trafficking: Measuring clandestinity by the structural equation approach By Friedrich Schneider; Alexandra Rudolph
  9. The Mmeasurement of Underground Economy: A Dynamic-Simulation Based Approach By Amedeo Argentiero; Carlo Andrea BOLLINO

  1. By: Frédéric DOCQUIER (FNRS and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Tobias MÜLLER (University of Geneva, Switzerland); Joaquín NAVAL (Universitat Autònoma de Barcelona, Spain)
    Abstract: One of the most salient features of developing economies is the existence of a large informal sector. This paper uses quantitative theory to study the dynamic implications of informality on wage inequality, human capital accumulation, child labor and long-run growth. Our model can generate transitory informality equilibria or informality-induced poverty traps. Its calibration reveals that the case for the poverty-trap hypothesis is strong: although informality serves to protect low-skilled workers from extreme poverty in the short-run, it prevents income convergence between developed and developing nations in the long run. Sudden elimination of informality would induce severe welfare losses for several generations on the transition path. Hence, we examine the effectiveness of different development policies to exit the poverty trap. Our numerical experiments show that using means-tested education subsidies is the most cost-effective single policy option. However, for longer time horizons, or as the economy gets closer to the poverty trap threshold, combining means-tested education and wage subsidies is even more effective.
    Keywords: informality, development, education, child labor, inequality
    JEL: O11 O15 O17
    Date: 2013–12–23
  2. By: Christophe Nordman (IRD, UMR 225 DIAL); Julia Vaillant (World Bank, Université Paris Dauphine, LEDa UMR 225 DIAL, IRD)
    Abstract: (english) We use a representative sample of informal entrepreneurs in Madagascar to add new evidence on the magnitude of the gender performance gap. After controlling for business and entrepreneur characteristics, female-owned businesses exhibit a value added 28 percent lower than their male counterparts. Correcting for endogenous selection into informal self-employment raises the gap by 5 percentage points. We then investigate the role of sharing norms and gender-differentiated allocation of time within the household in the gender performance gap, by estimating their effect on the technical inefficiency of female and male entrepreneurs. Only male entrepreneurs seem subject to pressure to redistribute from the distant network. Our findings are consistent with situations where women working at home would essentially feel negatively the burden of their own community due to intense social norms and obligations in their workplace but also of domestic chores and responsibilities. We find evidence of females self-selecting themselves into industries in which they can combine marketoriented and domestic activities._________________________________ (français) Nous utilisons un échantillon représentatif d’entrepreneurs informels à Antananarivo, Madagascar, pour mesurer et expliquer l'existence d'un écart de performance entre les unités de production informelles dirigées par des hommes et celles dirigées par des femmes. Une fois pris en compte les niveaux des facteurs de production, de capital humain, le secteur d'activité, l'année et la sélection endogène dans l'entreprenariat, l'écart de valeur ajoutée entre les entreprises féminines et masculines est d’environ 33%, au détriment des femmes. Nous étudions ensuite l’impact différencié des normes de partages au sein de la communauté et de la répartition des tâches au sein du ménage sur la capacité des hommes et des femmes entrepreneurs à atteindre leur frontière de production. Notre analyse suggère que seuls les entrepreneurs masculins sont sujets à la pression à la redistribution de la part du réseau distant. Pour les femmes, opérer une activité à domicile n’est pas un handicap en soi, mais cela agit plutôt comme un vecteur de transmission des effets négatifs des normes sociales et de répartition des tâches sur la gestion de l’entreprise. Nos résultats sont compatibles avec des situations dans lesquelles les femmes entrepreneures opérant une activité à domicile ressentiraient davantage le poids de leur propre communauté, sans doute à cause de normes de solidarité contraignantes, mais aussi à cause de leurs responsabilités domestiques.
    Keywords: Gender, entrepreneurship, informal sector, sharing norms, household composition, Madagascar, Genre, entreprenariat, secteur informel, normes de partage, allocation du temps au sein des ménages.
    JEL: D13 D61 O12 J16
    Date: 2013–10
  3. By: Abd El Hamid Ali, Hoda
    Abstract: The present study examines trends in employment status in Egypt in an important era of democratic transition. It examines determinants of different labor force participation by gender. The empirical analysis is based on the World Values Survey of the fifth wave (2005-2008). A comparative descriptive approach is used to analyze the difference between males' and females' employment status. The study uses logistic regression analysis to examine the determinants of different labor force participation, and to examine the impact of different labor force practices and income equality on poverty. Empirical findings support a gender gap with respect to accessibility to full time paid work, only young females, regardless their computer skills, education attainment, marital status are more likely to be engaged in full time work, while those in middle age are more properly engaged in unpaid employment. The study also finds a gender gap in job search intensity. We also conclude that there is no linkage between employment status and poverty, however we find a positive and significant impact of females 'perception regarding the importance of having more equal distribution of income and their perception regarding the importance of poverty problem. These results show that women in Egypt are less engaged in decent jobs because they are less educated, having lower skills, more affected by income inequality and poverty. Social security should be reformed to cover all women, reforms are also needed for pensions, and unemployment insurance, to cover all retired, old age, care –giving, and unemployed individuals
    Keywords: Employment Status, Paid- Unpaid work, Formal and Informal work, Decent Work, Gender, Income Equality, Poverty, Egypt.
    JEL: J0 J01 O1 O17
    Date: 2013
  4. By: Chakraborty, M.
    Abstract: In recent time Delhi has revealed its ambitions as a global city. The consequent need for cheap, casual, migrant labour for maintaining its world-scale ambitions has been highlighted in a lot of literature, particularly in the post Commonwealth Games (CWG) period. The migrant labourers in the informal economy of Delhi are seen as oppressed, particularly if they belong to a subordinated social group, like the Muslim male migrants. However, there is need to examine the homogenization implied by ‘Muslim male migrants’. This research aims to challenge the one-dimensional depiction of Muslim male migrants as ‘victims’. Analysing the narratives of two groups of Muslim migrant men in a South Delhi neighbourhood, this research tries to critically look at stable markers of identity such as ethnicity, gender and class. The research reveals identities as fluid, multiple and relational. The men emerge as complex subjects—not just passive ‘victims’ but capable of asserting agency, often through the strategic mobilisation of their multiple identities.
    Keywords: Afghan migrants, Bengali migrants, Delhi, Delhi Master Plan 2021, Muslim men, Right to the City, ethnicity, feminist methodology, informal economy, masculinities, men, migrants, multiple identities, rickshaw-pullers, urban citizenship
    Date: 2013–02–28
  5. By: Turcotte, I.; Gomez, G.M.
    Abstract: Waste picking has become a prominent activity in the urban landscape, bridging the gap between shortfalls in service delivery and personal income generation in virtually all cities of the developing world. Overcoming previous stigmatization and work fragmentation through organization and dialogue, social economy organizations constituted by waste pickers are emerging as valuable actors in the governance framework, partnering at times with the public and private sectors to fulfil public service provision while aiming to improve the livelihoods of the poor and overcome the institutional nature of poverty. Bogota’s Plan Maestro Integral de Residuos Solidos (PMIRS) serves as a case study to explore these new modalities in service delivery, and to delve into the theoretical dimensions and practical implications of fomenting the inclusion of informal waste pickers into integrated solid waste management systems.
    Keywords: Bogotá (Colombia), governance, poverty, social economy, waste picking
    Date: 2012–09–05
  6. By: Dean Karlan, Aishwarya Lakshmi Ratan, Jonathan Zinman
    Abstract: The poor can and do save, but often use formal or informal instruments that have high risk, high cost, and limited functionality. This could lead to undersaving compared to a world without market or behavioral frictions. Undersaving can have important welfare consequences: variable consumption, low resilience to shocks, and foregone profitable investments. We lay out five sets of constraints that may hinder the adoption and effective usage of savings products and services by the poor: transaction costs, lack of trust and regulatory barriers, information and knowledge gaps, social constraints, and behavioral biases. We discuss each in theory, and then summarize related empirical evidence, with a focus on recent field experiments. We then put forward key open areas for research and practice.
    Keywords: Savings, Randomized Evaluation, Poverty
    JEL: D12 D91 G21 O16
    Date: 2013–11
  7. By: Georgarakos, Dimitris; Haliassos, Michalis; Pasini, Giacomo
    Abstract: Debt-induced crises, including the subprime, are usually attributed exclusively to supply-side factors. We uncover an additional factor contributing to debt culture, namely social influences emanating from the perceived average income of peers. Using unique information from a representative household survey of the Dutch population that circumvents the need to define the social circle, we consider collateralized, consumer, and informal loans. We find robust social effects on borrowing - especially among those who consider themselves poorer than their peers - and on indebtedness, suggesting a link to financial distress. We check the robustness of our results using several approaches to rule out spurious associations and handle correlated effects. --
    Keywords: Household finance,household debt,social interactions,mortgages,consumer credit,informal loans
    JEL: G11 E21
    Date: 2013
  8. By: Friedrich Schneider; Alexandra Rudolph (Ruprecht-Karl-University Heidelberg)
    Abstract: Worldwide human trafficking (HT) is the third most often registered international criminal activity, ranked only after drug and weapon trafficking. The aim of the paper is to measure the extent of HT inflows to destination countries. It proposes the application of the Multiple Indicators Multiple Causes (MIMIC) structural equation model in order to include potential causes and indicators in one model and generate an index of the intensity of HT in destination countries. Thus, we account for the unobservable nature of the crime as well as for visible aspects that both shape the extent of it. By including both dimensions of the trafficking process the model is applied over a period of ten years. The resulting measure orders 142 countries between 2000 and 2010 according to their potential of being a destination country based on characteristics of the trafficking process. The results are that OECD countries are the most likely destination countries while developing countries are less likely.
    Keywords: Human trafficking, MIMIC models, latent variable, structural equation models
    JEL: C39 F22 K42 K49
    Date: 2013–12
  9. By: Amedeo Argentiero; Carlo Andrea BOLLINO
    Abstract: This paper presents a theoretical contribution to model and dynamically analyze underground economy. We build a DSGE model with two sectors and one homogeneous good produced either by the sunlight and the underground firm. The sunlight firm is subject to distortionary taxation, whereas the underground firm evades taxation. The economy is subject to stochastic uncorrelated technology shocks on total factor productivity on private sectors and public labor. The demand side of the economy is populated by an infinite number of households with preferences defined over legal good consumption, public expenditure and labor services on a period-by-period basis. The government collects taxation from the sunlight sector and fights tax evasion through audit activity undertaken by public officers. When detected, underground firms are subject to regular taxation and additional fine payments. We simulate the model under the productivity shocks for Italy, over the sample 1974:01-2011:02. We find that in Italy underground economy share of GDP is on average about 23%. The dynamic behavior of the model shows that: (i) an efficient audit activity has a negative impact on public accounts thus generating a tradeoff between the reduction of underground economy and the worsening of public finance; (ii) sunlight production has a greater relative volatility with respect to undeground production; iii) all variables of the underground sector appear to be negatively correlated with the corresponding ones of regular economy. This implies that underground activity is a sort of buffer for the economy, whenever the business cycle is in downturn phases.
    Date: 2013–11–04

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