Incidence of Corruption On Formal And Informal Sectors: Is There Any Symmetry?

Vivekananda Mukherjee and Aparajita Roy ()
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Vivekananda Mukherjee and Aparajita Roy: University of Wisconsin-Milwaukee
Authors registered in the RePEc Author Service: Vivekananda Mukherjee

Journal of Economic Development, 2019, vol. 44, issue 3, 79-99

Abstract: Do the formal and informal sectors of production react symmetrically to higher frequency of corruption? The theoretical model developed in the paper qualifies the answer and explains certain empirical observations. In the informal sector while an increased frequency of corruption increases the entry cost, in the formal sector the effect remains uncertain. While abundance of firms definitely falls in the formal sector, in the informal sector it may either rise or fall in the economies with high share of formal sector employment and unambiguously falls in the economies with low share of formal sector employment. Finally, while the firm size distribution shifts towards relatively larger firms in the formal sector, in the informal sector the effect on firm size distribution remains uncertain in the economies with high share of formal sector employment and it shifts towards smaller size firms in the economies with low share of formal sector employment.

Keywords: Corruption; Entry cost; Firm size distribution; Formal and informal sectors (search for similar items in EconPapers)
JEL-codes: D24 D73 H11 L11 L22 (search for similar items in EconPapers)
Date: 2019
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