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Impact of Trade Liberalisation on the Informal Sector—A Study for the BRICS

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  • Pooja Khanna

    (University of Delhi)

Abstract

This paper empirically investigates the impact of trade liberalisation on the informal economy for the BRICS nations. Common criteria for choosing these countries are (a) trade reforms and (b) presence of a large informal sector. While trade liberalisation and globalisation may have propelled economic growth for these countries, their impact on the unorganised sector in these countries is not so straightforward. An increase in the size of informal sector may lead to higher inequality, lower efficiency and other development-related issues. Using panel data for the five countries: Brazil, Russia, India, China and South Africa for the period 1996–2015, this paper attempts to investigate whether trade reforms undertaken by the BRICS nations have led to higher informal sector activity or have caused the shadow economy to expand in these countries. Due to the complexity involved in defining and measuring informality, two measures of informality, given by Kauffmann and Kaliberda and Schneider, were used to identify the impact of trade liberalisation on the informal sector activity in these countries. Empirical investigations based on the Kauffmann and Kaliberda approach revealed higher informality with greater trade volumes, whereas the impact of trade liberalisation was found to be insignificant on the measure of informality provided by Schneider’s approach.

Suggested Citation

  • Pooja Khanna, 2021. "Impact of Trade Liberalisation on the Informal Sector—A Study for the BRICS," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 64(1), pages 101-113, March.
    • Handle: RePEc:spr:ijlaec:v:64:y:2021:i:1:d:10.1007_s41027-020-00299-2
    DOI: 10.1007/s41027-020-00299-2
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    References listed on IDEAS

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    1. Leandro Medina & Mr. Friedrich Schneider, 2018. "Shadow Economies Around the World: What Did We Learn Over the Last 20 Years?," IMF Working Papers 2018/017, International Monetary Fund.
    2. Castro, Lucio & Olarreaga, Marcelo & Saslavsky, Daniel, 2006. "The impact of trade with China and India on Argentina’s manufacturing employment," MPRA Paper 538, University Library of Munich, Germany.
    3. Koujianou Goldberg, Pinelopi & Pavcnik, Nina, 2003. "The response of the informal sector to trade liberalization," Journal of Development Economics, Elsevier, vol. 72(2), pages 463-496, December.
    4. Axel Dreher, 2006. "Does globalization affect growth? Evidence from a new index of globalization," Applied Economics, Taylor & Francis Journals, vol. 38(10), pages 1091-1110.
    5. Gregory C. Chow, 2004. "Economic Reform and Growth in China," Annals of Economics and Finance, Society for AEF, vol. 5(1), pages 127-152, May.
    6. Sugata Marjit & Saibal Kar & Hamid Beladi, 2007. "Trade Reform and Informal Wages," Review of Development Economics, Wiley Blackwell, vol. 11(2), pages 313-320, May.
    Full references (including those not matched with items on IDEAS)

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