What Sustains Informality? A Study of the Interactions between Formal and Informal Sector Firms

Research output: Contribution to journalArticlepeer-review

Abstract

This paper considers two vertical links between informal and formal sector firms and studies their implications. First, we model a situation where final products produced by the formal and informal sector firms are differentiated in terms of quality and consumption demand for the informal sector firm is related to the distribution of income. Less well-off consumers generate demand for the low-priced, low quality good produced by the informal sector. Our paper studies the implications of this link for the size of the informal sector. Second, we analyse a situation where, instead of competing with the formal sector firm, the informal sector firm produces an intermediate good for the other firm.
Original languageEnglish
Pages (from-to)1403-1415
Number of pages13
JournalThe Journal of Development Studies
Volume58
Issue number7
Early online date26 May 2022
DOIs
Publication statusPublished - 31 Dec 2022

Keywords

  • Informal sector
  • income distribution
  • intermediate goods
  • market size
  • quality choice

ASJC Scopus subject areas

  • Development

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