Diverging Paths: Transition in the Presence of the Informal Sector

Maxim Bouev

William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: This work suggests a development of the seminal model of transition from plan to market economy by Aghion and Blanchard (1994). We introduce an informal sector to show that its presence can generate qualitatively di?erent steady states, to which the economy converges in the end of transition. Two types of transitional dynamics are considered, and it is argued that they can help explain di?erences in evolution of formal and informal output exhibited, on the one hand, by East European countries and, on the other hand, by the former Soviet Union republics such as Russia or Ukraine.

Keywords: optimal speed of transition; informal economy; search models (search for similar items in EconPapers)
JEL-codes: J41 J42 J64 O17 P29 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2004-05-01
New Economics Papers: this item is included in nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:wdi:papers:2004-689

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