Characterisation of Economic Growth in Developing Economies with Informal Sector
01 Mar 2017-Economic Papers: A Journal of Applied Economics and Policy (John Wiley & Sons, Ltd)-Vol. 36, Iss: 1, pp 86-101
TL;DR: In this paper, the authors present a general equilibrium model of a developing economy with a capital intensive formal sector and a large informal sector with sector-specific capital to analyse the effects of investments on the sectoral returns to capital, sectoral wage rates, and composition of output and employment.
Abstract: The paper presents a general equilibrium model of a developing economy with a capital intensive formal sector and a large informal sector with sector-specific capital to analyse the effects of investments on the sectoral returns to capital, sectoral wage rates, and composition of output and employment. Beginning with capital market disequilibrium (unequal sectoral rates of return) and labour market distortion (formal-informal wage gap), the model traces the evolution of the economy till capital market equilibrium is attained. The investments in the formal sector equalise the wages (a “turning point” in growth a la Lewis) and reduces the size of the informal sector. The sectoral rates of returns equalise only if there is no factor intensity reversal, otherwise the economy specialises in the production of formal goods. The investments in the informal sector equalise the rates of return, do not affect the size of the formal sector and finally, a formal-informal wage gap persists provided factor intensities are not reversed.
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TL;DR: The authors developed a wage differential model with a unionized and a non-unionized informal sector for a small open economy, where the unionized wage rate adjusts to a cost of living index and the informal wage is market-determined.
Abstract: We develop a wage differential model with a unionized and a non-unionized informal sector for a small open economy. The unionized wage rate adjusts to a cost of living index and the informal wage is market-determined. In this structure, a Stolper-Samuelson type result holds without any assumption regarding factor-intensity ranking.
22 citations
TL;DR: In this paper, the authors conducted a qualitative multiple case study to gain a deeper understanding of the views of stakeholders residing within impoverished communities in Angola on rapid technology diffusion and its implication on labor market challenges within their regions.
Abstract: The purpose of this qualitative multiple case study was to gain a deeper understanding of the views of stakeholders residing within impoverished communities in Angola on rapid technology diffusion and its implication on labor market challenges within their regions. To address this gap, and consistent with the qualitative paradigm, this paper conducted methodological triangulation of the study’s multiple data sources, including semistructured interviews and archival data in the form of government labor reports, reflective field notes and archival data to establish the trustworthiness of the study’s data analysis and findings.,A gap in the literature exists between the general diffusion of technological innovations and socioeconomic development that results in an ambiguous connection between theory, academia and professional practice among sub-Saharan African countries. To inform governments in developing countries on how to effectively achieve the diffusion of innovations (DoI), this integrative literature review supports a broader qualitative multiple case study that offers insights into the views of stakeholders residing within impoverished communities in Angola, on rapid technology diffusion and its implication for labor market challenges. This overview of existing research offers a targeted knowledge base that can support future research and help promote the potential for socioeconomic development in low-income countries. By addressing the patterns of the relationship between various economic imbalances and the adoption of technology that promote the social divide, along with highlighting the importance of understanding the overall technological dualism between various social groups, promises effective policies for successful DoI in impoverished sub-Saharan African regions by evaluating its impact on local labor market challenges.,The results of this multiple case study research oversee a thematic analysis of the data collected based on the study’s multiple sources, following a cross-case analysis in which this paper synthesizes the findings of the initial thematic analysis of data to answer the study’s central research question. The multiple case study approach in this research follows the concept of replication logic discussed by Yin (2017) in which the same findings are replicated across multiple cases as similarities and differences are traced across cases, and the study results obtained in this way are deemed robust and reliable.,A potential key limitation in this study was associated to the participants’ limited experiences about the study’s central phenomenon, which if inadequate, could not have been reflective of the challenges faced and shared by the target population. This study mitigates the limitation with an observation in which a much sharper understanding of the participants’ knowledge about the topic of interest was developed. Another limitation was the sample size that could have been small and may not be representative of the entire population. This study mitigates the limitation through careful interpretation of the data and strong conclusion of results.,For practical implications, this study emphasized the importance of participative approaches to ICT implementation that if well adapted by policymakers could lead to a more contextually anchored ICT-supported poverty alleviation within different dimensions of poverty.,This study addresses an under-researched area on why innovation policy initiatives calling for technology diffusion in Angola continue to stall rather than combating labor market challenges in impoverished communities. This study brings the voices of local populations on technology diffusion in impoverished regions of Angola to the extant literature, launching the development of a body of knowledge that may point the way to a promising avenue of social change through innovation and technology diffusion.,This research is original and significant in that it addresses an under-researched area on innovation policy initiatives calling for technology diffusion in Angola that continue to stall rather than combating labor market challenges in impoverished communities. This study also makes an original contribution to Rogers’s seminal theory and concept of diffusion of innovations. The study’s results guided further research in technology adoption and innovation diffusion within Angola, a nation faced with poor human capital development and an increasing proportion of the world’s poorest people and unemployment.
17 citations
Cites background from "Characterisation of Economic Growth..."
...Some scholars argued that employment opportunities in sub-Saharan Africa are somewhat limited because of the fixed human capital stock, because only a small number of migrated technology-educated laborers can find jobs (Chattopadhyay & Mondal, 2016)....
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...…recommendations for how public and private governing centers with financial resources can bring training, education, and better infrastructure to rural, impoverished areas in sub-Saharan Africa (Economist Intelligence Unit, 2016; Chattopadhyay & Mondal, 2016; Lovrić, 2012; Nguimkeu, 2014)....
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...Gaps and arguments continue in the literature on the diffusion of innovation that focuses the quality of government institutions in sub-Saharan Africa (Bennett et al., 2017; Chattopadhyay & Mondal, 2016; Lovrić, 2012; Nguimkeu, 2014)....
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...…have old and unsuitable institutional structures, lack of law and regulations, scarce capital, lack of adequate education, inappropriate supply behavior of economic agents, and a huge disparity between the livelihood of the rich and poor (Chattopadhyay & Mondal, 2016; Lovrić, 2012; Nguimkeu, 2014)....
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...…of law and regulations, scarce capital, lack of technological education, inappropriate supply behavior of economic agents, and a huge disparity between the livelihood of the rich and poor (Chattopadhyay & Mondal, 2016; Danquah & Amankwah-Amoah, 2017), all factors confirmed by study participants....
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01 May 2011
TL;DR: In this article, the authors investigated the patterns of capital entry barriers and capital returns in informal Micro and Small Enterprises (MSE's) using a unique micro data set seven West-African countries.
Abstract: This paper investigates the patterns of capital entry barriers and capital returns in informal Micro and Small Enterprises (MSE's) using a unique micro data set seven West-African countries. The author's findings support the view of a heterogeneous informal sector that is not primarily host to subsistence activities. While an assessment of initial investment identifies some informal activities with negligible entry barriers, a notable cost of entry is associated to most activities. The authors find very heterogeneous patterns of capital returns in informal MSE's. At very low levels of capital, marginal returns are extremely high- often exceeding 70 percent per month. Above a capital stock of 150 international dollars, marginal returns are found to be relatively low at around 4 to 7 percent monthly. The authors provide some evidence that the high returns at low capital stocks reflect high risks. At the same time, most MSE's appear to be severely capital constrained.
16 citations
TL;DR: The workers in the unorganised sector in India constitute about ninety-three percent of the total workforce of the country as discussed by the authors, and they are facing serious problems in their work.
Abstract: The workers in the unorganised sector in India constitute about ninety-three percent of the total workforce of the country. The unorganised sector workers in India are facing serious problems rangi...
10 citations
Cites background from "Characterisation of Economic Growth..."
...RESULTS AND DISCUSSION Chattopadhyay and Mondal (2017) present a detailed statistical account of the informal sector in India....
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TL;DR: In this paper, the authors build a general equilibrium model of a developing economy with a large informal sector and a capital-intensive formal sector with sector-specific capital and incorporate endogenous demand, with homothetic preferences, a small initial wage premium and elastic relative demand.
Abstract: This paper aims to theoretically find out whether investments could close the formal-informal wage gap in India.,The paper builds a general equilibrium model of a developing economy with a large informal sector and a capital-intensive formal sector with sector-specific capital and incorporates endogenous demand.,With homothetic preferences, a small initial wage premium and elastic relative demand, investment in the formal sector is likely to close the wage gap, but the gap persists with non-homothetic preferences. However, investment in the informal sector is unlikely to close the wage gap with either type of preferences.,Though labour market distortions in developing economies leading to a formal-informal wage gap are well-documented in the development literature, little attention has been given to the question of whether such a gap would close over time.
3 citations
References
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TL;DR: The authors analyzes the implications of joint production for the four basic results of the factor-endowments theory of international trade and shows that the basic theorems will continue to hold in essence.
30 citations
Posted Content•
TL;DR: The authors developed a wage differential model with a unionized and a non-unionized informal sector for a small open economy, where the unionized wage rate adjusts to a cost of living index and the informal wage is market-determined.
Abstract: We develop a wage differential model with a unionized and a non-unionized informal sector for a small open economy. The unionized wage rate adjusts to a cost of living index and the informal wage is market-determined. In this structure, a Stolper-Samuelson type result holds without any assumption regarding factor-intensity ranking.
22 citations
TL;DR: In this article, the authors used India's National Sample Survey data on Employment and Unemployment (2011-12) to test whether the large share of informal employment is due to labor market segmentation or a result of competitive choice.
Abstract: As of 2011–12, informal workers in India comprise 85.8 percent of the total labor force. This paper uses India’s National Sample Survey data on Employment and Unemployment (2011–12) to test whether the large share of informal employment is due to labor market segmentation or a result of competitive choice. Results show that workers can freely enter informal employment. In contrast, there is no evidence of self-selection into formal employment. Based on this evidence, we cannot reject the labor market segmentation hypothesis for the Indian labor market. The wage gap decomposition results show that informal workers earn less than formal workers not only because they are less skilled, but also because they receive lower returns to their endowments compared to the formal workers. Thus, policies that focus on skill development may be necessary but are not sufficient to increase formal job opportunities and reduce the formal-informal wage gap.
19 citations
TL;DR: In this article, the main aim of the analysis and of the empirical evidence was simply to suggest that there may be a connection between the wage-productivity relation and underemployment.
Abstract: First, a general remark: I did not intend my paper to be the explanation for underemployment in underdeveloped economies. At least I hope that no one interpreted my intention as such. The main aim of the analysis and of the empirical evidence was simply to suggest that there may be a connection between the wage-productivity relation and underemployment. The analysis was suggestive rather than exhaustive. It could be carried further in various directions by changing some of the assumptions, which would yield similar results in some cases and different results in others.
19 citations
TL;DR: In this paper, the authors formalized a general equilibrium model of inter-sectoral capital mobility and informal wage to argue that, with limited degree of capital mobility, trade reform reduces the informal wage.
Abstract: Studies on formal-informal interactions in the labor markets of developing countries claim that economic reform increases the level of informal activity. Although the extent of such claims differs across countries, it is generally believed that reform is likely to depress informal wage by contracting the formal sector and driving labor onto its informal counterpart. However, available empirical evidence suggests that real wage and real fixed assets in the informal manufacturing sector have risen significantly across most states in post-liberalization India. Using this as a benchmark, we formalize a general equilibrium model of inter-sectoral capital mobility and informal wage to argue that, with limited degree of capital mobility, trade reform reduces the informal wage. This is the conventional wisdom usually obtained under a partial equilibrium framework. However, with increased mobility of capital this result is reversed. We offer detailed empirical evidence on the movements of real wage in the informal sector in India and how this affects poverty at the state level. The basic result on income mobility is corroborated by a primary survey in the province of West Bengal, for which we offer descriptive analysis on household income levels in the province's informal manufacturing and service sectors.
18 citations