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Bureaucratic efficiency, economic reform and informal sector

Author

Listed:
  • Sujata Ghosh

    (Visva-Bharati University)

  • Biswajit Mandal

    (Visva-Bharati University
    Soka University)

Abstract

In this paper, we develop a four sector general equilibrium model of a small open economy with three formal sectors and one informal sector. One formal sector’s output is used as an intermediate input in all other sectors. This intermediate input is defined here as bureaucracy. We have also incorporated an additional cost specific to the informal sector in addition to factor cost of production which is defined as the cost of corruption. In this context, this paper examines the impact of less protectionist policy and bureaucratic reform on the output levels and factor prices. It has been shown that the informal sector and manufacturing sector have contracted due to tariff reduction while informal wage goes up. Further, we have examined the effect of a decrease in bureaucratic (in)efficiency. This reduces the informal wage rate but informal sector expands. It is further examined that the effect of a decrease in the cost of corruption leads to an increase in the informal wage rate.

Suggested Citation

  • Sujata Ghosh & Biswajit Mandal, 2019. "Bureaucratic efficiency, economic reform and informal sector," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 9(2), pages 121-137, June.
    • Handle: RePEc:spr:eurase:v:9:y:2019:i:2:d:10.1007_s40822-018-0123-3
    DOI: 10.1007/s40822-018-0123-3
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    More about this item

    Keywords

    General equilibrium; Informal sector; Tariff liberalization; Bureaucracy;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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