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Trade, Employment and the Informal Sector: An Agent-based Analysis

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  • Bill Gibson

Abstract

This article discusses a multi-agent model of the informal sector. An analytical model is first developed to explore the possible range of relationships between formal and informal employment. Data from the agent-based model support protecting formal sector jobs with current account restrictions. It is seen that restrictions on outsourcing can have a positive effect on formal sector activity. Offshoring, that is, relocating to another country, is also considered. When restrictions on offshoring are studied, it is seen that formal sector employment growth is less robust. Unrestricted current and capital account activity produces a steady state with near zero informal activity, while restrictions preserve the informal sector indefinitely. JEL Classifications : O17, E17, D58

Suggested Citation

  • Bill Gibson, 2012. "Trade, Employment and the Informal Sector: An Agent-based Analysis," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 6(2), pages 277-310, May.
    • Handle: RePEc:sae:mareco:v:6:y:2012:i:2:p:277-310
    DOI: 10.1177/097380101200600208
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    References listed on IDEAS

    as
    1. Gibson, Bill & Kelley, Bruce, 1994. "A Classical Theory of the Informal Sector," The Manchester School of Economic & Social Studies, University of Manchester, vol. 62(1), pages 81-96, March.
    2. World Bank, 2009. "Geography in Motion: World Development Report 2009 (excerpt)," Transnational Corporations Review, Ottawa United Learning Academy, vol. 1(3), pages 40-46, September.
    3. Bill Gibson, 2007. "A Multi-Agent Systems Approach to Microeconomic Foundations of Macro," UMASS Amherst Economics Working Papers 2007-10, University of Massachusetts Amherst, Department of Economics.
    4. Joshua M. Epstein & Robert L. Axtell, 1996. "Growing Artificial Societies: Social Science from the Bottom Up," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262550253, December.
    5. World Bank, 2009. "World Development Report 2009," World Bank Publications - Books, The World Bank Group, number 5991.
    6. J. Doyne Farmer & Duncan Foley, 2009. "The economy needs agent-based modelling," Nature, Nature, vol. 460(7256), pages 685-686, August.
    7. Brock,W.A. & Durlauf,S.N., 2005. "Social interactions and macroeconomics," Working papers 5, Wisconsin Madison - Social Systems.
    8. Bill Gibson, 2008. "Keynesian And Neoclassical Closures In An Agent-Based Context," UMASS Amherst Economics Working Papers 2008-03, University of Massachusetts Amherst, Department of Economics.
    9. Paul Beaudry & Fabrice Collard, 2002. "Why has the Employment-Productivity Tradeoff among Industrialized Countries been so strong?," NBER Working Papers 8754, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Informal Sector; Employment; Agent-based Models;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

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