nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2016‒02‒29
six papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Household Saving and Labor Informality: The Case of Chile By Alfredo Schclarek; Mauricio Caggia
  2. Quarterly Bayesian DSGE Model of Pakistan Economy with Informality By Waqas Ahmed; Muhammad Jahanzeb Malik; Muhammad Rehman
  3. Energy consumption and the size of the informal economy By Basbay, Mustafa Metin; Elgin, Ceyhun; Torul, Orhan
  4. More Is Not Always Better: An Experimental Individual-Level Validation of the Randomized Response Technique and the Crosswise Model By Marc Höglinger; Ben Jann
  5. Borrowers’ Participation in Group Borrowing By Tutlani, Ankur
  6. Potencial de mercado y desigualdad salarial, evidencia para México By Cardoso-Vargas, Carlos

  1. By: Alfredo Schclarek; Mauricio Caggia
    Abstract: This paper compares the saving behavior of formal and informal workers and additionally provides a socioeconomic and financial characterization of informal workers in Chile. The paper uses the Financial Household Survey conducted by the Central Bank of Chile in 2007, 2008, 2009 and 2010, which covers between 1,740 and 2,533 urban households, performing both OLS and probit regressions. The cross-section regression results indicate that, in general, informal households save less than formal households. Further, descriptive data indicate that informal workers have less access to financial services and possess less financial assets and liabilities. In terms of policy implications, combating informality may not only improve the well-being of workers, but may also have positive consequences on the aggregate saving rate. In addition, for Chile, it is evident that there is ample room to improve access to financial services not only for informal but also for formal workers.
    Keywords: Workforce & Employment, Income, Consumption & Saving, Financial Services, Saving, Precautionary Saving, Labor Informality, Financial Household Survey, Life Cycle Theory, Chile, Latin America
    Date: 2015–05
  2. By: Waqas Ahmed (State Bank of Pakistan); Muhammad Jahanzeb Malik (State Bank of Pakistan); Muhammad Rehman (State Bank of Pakistan)
    Abstract: In this paper we use the Bayesian methodology to estimate the structural and shocks? parameters of the DSGE model in Ahmad et al. (2012). This model includes formal and informal firms both at intermediate and final goods production levels. Households derive utility from leisure, real money balances and consumption. Each household is treated as a unit of labor which is a composite of formal (skilled) and informal (unskilled) labor. The formal (skilled) labor is further divided into types “r” and households have monopoly over each type “r” labor which depends upon degree of education. We go a step further by converting the existing annually calibrated model to quarterly frequency. As a result our impulse response functions have more relevant and realistic policy implications. From the results we do find the shock absorbing role of the informal sector, however, with short term existence. The model estimation diagnostics also confirm robustness and reasonability of the estimation results.
    Keywords: Bayesian Estimation, DSGE Model, Shock Process
    JEL: E17
    Date: 2014–03
  3. By: Basbay, Mustafa Metin; Elgin, Ceyhun; Torul, Orhan
    Abstract: The authors empirically investigate the relationship between energy consumption and the size of the informal economy. Relying on panel data regression models, their results show that at the aggregate level, energy intensity is inversely related to the size of the informal sector, providing actual empirical evidence on the presence of high labor and low capital intensity in the informal economy. Furthermore, the authors also find some support towards the presence of non-linearity and asymmetry in this relationship.
    Keywords: informal sector,energy consumption,panel data
    JEL: O17 O13 P48 E26
    Date: 2016
  4. By: Marc Höglinger; Ben Jann
    Abstract: Social desirability and the fear of sanctions can deter survey respondents from responding truthfully to sensitive questions. Self-reports on norm breaking behavior such as shoplifting, non-voting, or tax evasion may therefore be subject to considerable misreporting. To mitigate such misreporting, various indirect techniques for asking sensitive questions, such as the randomized response technique (RRT), have been proposed in the literature. In our study, we evaluate the viability of several variants of the RRT, including the recently proposed crosswise-model RRT, by comparing respondents’ self-reports on cheating in dice games to actual cheating behavior, thereby distinguishing between false negatives (underreporting) and false positives (overreporting). The study has been implemented as an online survey on Amazon Mechanical Turk (N = 6,505). Our results indicate that the forced-response RRT and the unrelated-question RRT, as implemented in our survey, fail to reduce the level of misreporting compared to conventional direct questioning. For the crosswise-model RRT, we do observe a reduction of false negatives (that is, an increase in the proportion of cheaters who admit having cheated). At the same time, however, there is an increase in false positives (that is, an increase in non-cheaters who falsely admit having cheated). Overall, our findings suggest that none of the implemented sensitive questions techniques substantially outperforms direct questioning. Furthermore, our study demonstrates the importance of distinguishing false negatives and false positives when evaluating the validity of sensitive question techniques.
    Keywords: Sensitive Questions, Online Survey, Amazon Mechanical Turk, Randomized Response Technique, Crosswise Model, Dice Game, Validation
    JEL: C81 C83
    Date: 2016–02–15
  5. By: Tutlani, Ankur
    Abstract: Borrowers’ participation in MFI group lending credit market is not insured because of the alternative sources of credit available. The question arises what is the ideal MFI interest rate to ensure borrowers’ participation which at the same time being financially viable for MFI. The paper attempts to answer this question and analyzes the borrowers’ trade-off of borrowing from MFI or from moneylender (ML). Results show that borrowers may find comparative advantage in borrowing individually from ML as compared to borrowing in a group from MFI if the transaction cost burden is high and their credit requirement is low
    Keywords: Microfinance, Group lending, Informal finance, Transaction cost, Effective cost
    JEL: G21 O17
    Date: 2016–02–12
  6. By: Cardoso-Vargas, Carlos
    Abstract: This paper examines the relationship between market potential and wages of manufacturing workers in the states of Mexico, using a standard model of New Economic Geography. The evaluation is considered an important aspect in developing countries, such as the distinction between formal and informal workers. The estimates show that, in general, the elasticity of market potential on wages is 0.082, which is robust to different measures related to the theories of agglomeration and endogeneity problems and spatial autocorrelation. It is also found that wages of informal workers are less sensitive to changes in market potential compared to the wages of formal employees and benefit from externalities generated by the presence of foreign firms. A simulation suggests that up to 10.7% of the wage gap between workers in states bordering North America and located in southern Mexico can be attributed to economic geography; this effect is smaller for informal workers and for the case of formal doubles.
    Keywords: Wage inequality , agglomeration economies, new geography economic, formal sector and informal sector.
    JEL: J31 O17 R12
    Date: 2015–04–16

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