nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2018‒05‒21
three papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Strict duality and overlapping productivity distributions between formal and informal firms By Allen, Jeffrey; Nataraj, Shanthi; Schipper, Tyler C.
  2. Informal Economy of Rural Households in Russia: Regional and Sectoral Features, Interaction with the State and Society By Nikulin, Alexander
  3. Social capital as a coping mechanism for seasonal deprivation: The case of the Monga in Bangladesh By Bakshi, Rejaul; Mallick, Debdulal; Ulubaşoğlu, Mehmet

  1. By: Allen, Jeffrey; Nataraj, Shanthi; Schipper, Tyler C.
    Abstract: This paper develops a multi-industry general equilibrium model where entrepreneurs within each industry can decide to operate formally or informally. The model generates a rich set of predictions including productivity cut-offs for formal and informal firms to operate within different industries. In doing so, it matches empirical research that finds an overlap in the aggregate productivity distributions of formal and informal firms, while being consistent with theoretical predictions of strict duality within industries. Our explanation for this outcome is that it is natural result of fixed costs varying across industries. We offer evidence that the overlap between formal and informal firms in the aggregate is larger than the overlaps within industries for the case of Indian manufacturing establishments. Our model is also consistent with other features of the data in that it can explain high levels of competition between formal and informal firms that decrease with formal firm size.
    Keywords: informality; competition; dual view; productivity
    JEL: E26 O17
    Date: 2018–04
  2. By: Nikulin, Alexander (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: The relevance of the problem is due to the fact that in recent decades the rural areas of all regions of the world are facing the complication of the global socioeconomic context of their sustainable development (and even survival) in connection with the formation of the international food and agro-industrial markets that dictate their demands to the agriculture of all countries. The growing and increasing tendencies of globalization give rise to similar consequences in rural areas, regardless of specific regional and country conditions (the dominance of agroholdings, the disappearance of villages, the formation of urban agglomerations with rural suburbanizational suburbs, etc.), but the globalization and state pressure is opposed by another tendency - glocalization, or preservation by local communities of their own social and economic specifics, primarily through tools of informal economy. The latter can act simultaneously in two ways: as a tool for confronatation of local rural communities with models of social and economic development ("weak arms" by J. Scott) imposed by the "above" (state, market or international business); and, conversely, as an instrument for maximally painless and successful integration of local rural communities into the new social and economic context of modern life.
    Date: 2018–04
  3. By: Bakshi, Rejaul; Mallick, Debdulal; Ulubaşoğlu, Mehmet
    Abstract: The extreme hunger and deprivation that recurs every year in the lean season in northern Bangladesh, locally known as the Monga, is mainly due to the malfunctioning local labor and credit markets. Using data covering 5,600 extreme poor households in the Monga-prone region, we investigate in detail the role of social capital in securing employment and obtaining informal loans. Correcting for the endogeneity of social capital by the heteroscedasticity-based method proposed by Klein and Vella (2010) and also by the standard IV method for a robustness check, we document that social capital plays an important role in obtaining both wage- and self-employment. We also document a weak negative effect of social capital on obtaining informal loans. We explain our results in terms of the role of horizontal and vertical components of our measures of social capital in influencing different outcomes.
    Keywords: Monga, extreme seasonality, social capital, heteroscedasticity, employment, informal loan
    JEL: G21 I32 P46
    Date: 2017

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