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Informal Sector and Corruption: An Empirical Investigation for India

Author

Listed:
  • Dutta, Nabamita

    (University of Wisconsin, La Crosse)

  • Kar, Saibal

    (Centre for Studies in Social Sciences, Calcutta)

  • Roy, Sanjukta

    (World Bank)

Abstract

India is a country characterized by a huge informal sector. At the same time, it is a country where the extent of corruption in every sector is remarkably high. Stifling bureaucratic interference and corruption at every stage of economic activities is one of the main reasons behind high participation in informal and unregulated sectors. For economies characterized by high inequality and poverty, a useful tool for the government to pacify social unrest, is to choose a lower level of governance allowing substantial corruption in the system. Based on a study of 20 Indian states, we empirically show that higher corruption increases level of employment in the informal sector. Further, our analysis also shows that for higher levels of lagged state domestic product, the positive impact of corruption on the size of the informal sector is nullified.

Suggested Citation

  • Dutta, Nabamita & Kar, Saibal & Roy, Sanjukta, 2011. "Informal Sector and Corruption: An Empirical Investigation for India," IZA Discussion Papers 5579, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp5579
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    More about this item

    Keywords

    state domestic product; corruption; informal sector; governance; India;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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