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Incidence of Corruption On Formal And Informal Sectors: Is There Any Symmetry?

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  • Vivekananda Mukherjee and Aparajita Roy

    (University of Wisconsin-Milwaukee)

Abstract

Do the formal and informal sectors of production react symmetrically to higher frequency of corruption? The theoretical model developed in the paper qualifies the answer and explains certain empirical observations. In the informal sector while an increased frequency of corruption increases the entry cost, in the formal sector the effect remains uncertain. While abundance of firms definitely falls in the formal sector, in the informal sector it may either rise or fall in the economies with high share of formal sector employment and unambiguously falls in the economies with low share of formal sector employment. Finally, while the firm size distribution shifts towards relatively larger firms in the formal sector, in the informal sector the effect on firm size distribution remains uncertain in the economies with high share of formal sector employment and it shifts towards smaller size firms in the economies with low share of formal sector employment.

Suggested Citation

  • Vivekananda Mukherjee and Aparajita Roy, 2019. "Incidence of Corruption On Formal And Informal Sectors: Is There Any Symmetry?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 44(3), pages 79-99, September.
    • Handle: RePEc:jed:journl:v:44:y:2019:i:3:p:79-99
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    References listed on IDEAS

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    More about this item

    Keywords

    Corruption; Entry cost; Firm size distribution; Formal and informal sectors;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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