Impact of Trade Liberalisation on the Informal Sector—A Study for the BRICS

Pooja Khanna ()
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Pooja Khanna: University of Delhi

The Indian Journal of Labour Economics, 2021, vol. 64, issue 1, No 5, 113 pages

Abstract: Abstract This paper empirically investigates the impact of trade liberalisation on the informal economy for the BRICS nations. Common criteria for choosing these countries are (a) trade reforms and (b) presence of a large informal sector. While trade liberalisation and globalisation may have propelled economic growth for these countries, their impact on the unorganised sector in these countries is not so straightforward. An increase in the size of informal sector may lead to higher inequality, lower efficiency and other development-related issues. Using panel data for the five countries: Brazil, Russia, India, China and South Africa for the period 1996–2015, this paper attempts to investigate whether trade reforms undertaken by the BRICS nations have led to higher informal sector activity or have caused the shadow economy to expand in these countries. Due to the complexity involved in defining and measuring informality, two measures of informality, given by Kauffmann and Kaliberda and Schneider, were used to identify the impact of trade liberalisation on the informal sector activity in these countries. Empirical investigations based on the Kauffmann and Kaliberda approach revealed higher informality with greater trade volumes, whereas the impact of trade liberalisation was found to be insignificant on the measure of informality provided by Schneider’s approach.

Keywords: Trade; Informal sector; Panel data; BRICS (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s41027-020-00299-2

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