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Lurking in the cities: Urbanization and the informal economy

Ceyhun Elgin and Cem Oyvat

Structural Change and Economic Dynamics, 2013, vol. 27, issue C, pages 36-47

Abstract: This study investigates the empirical relationship between the level of urbanization and size of the informal economy using cross-country datasets proxying GDP and employment shares of urban informal sector. Our estimation results indicate that there is an inverted-U relationship between informality and the level of urbanization. That is, the share of the informal sector grows in the early phases of urbanization due to several pull and push factors; however, it tends to fall in the latter phases. We also show that factors like level of taxes, trade openness, and institutional quality tend to affect the size of the informal economy.

Keywords: Urbanization; Informal sector; Kuznets curve; Panel data (search for similar items in EconPapers)
JEL-codes: E26 O11 (search for similar items in EconPapers)
Date: 2013
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Persistent link: http://EconPapers.repec.org/RePEc:eee:streco:v:27:y:2013:i:c:p:36-47

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