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What induces firms to subcontract to the informal sector? Evidence from a developing country

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  • Rajeev K. Goel
  • Fahd Rehman

Abstract

Adding specific firm-level insights into the factors driving firms to subcontract operations to the informal sector, this article uses data from garment exporters in Pakistan. Nesting the analysis in the larger literature on the drivers of the shadow economy, we find that sole proprietorship ownership structure was more likely to subcontract underground, as were older entrepreneurs. On the other hand, older firms were less likely to subcontract underground. The effects of the entrepreneur’s education, firm size, input costs and overall economic prosperity, economic freedom and government stability were largely insignificant.

Suggested Citation

  • Rajeev K. Goel & Fahd Rehman, 2020. "What induces firms to subcontract to the informal sector? Evidence from a developing country," Applied Economics Letters, Taylor & Francis Journals, vol. 27(3), pages 178-187, February.
    • Handle: RePEc:taf:apeclt:v:27:y:2020:i:3:p:178-187
    DOI: 10.1080/13504851.2019.1612028
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    Cited by:

    1. Colin C. Williams, 2023. "A Modern Guide to the Informal Economy," Books, Edward Elgar Publishing, number 18668.
    2. Rajeev K. Goel & James W. Saunoris, 2022. "Push from the shadows: Does the shadow economy facilitate market exit of firms?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(7), pages 2955-2966, October.
    3. Sang Hyup Lee & Luis Gutiérrez, 2024. "A logit analysis of norm compliance by micro-enterprises in Chile," Economics Bulletin, AccessEcon, vol. 44(3), pages 1196-1213.

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