Why do informal markets remain informal: the role of tacit knowledge in an Indian footwear cluster

Yugank Goyal () and Klaus Heine ()
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Yugank Goyal: OP Jindal Global University
Klaus Heine: Erasmus University Rotterdam

Journal of Evolutionary Economics, 2021, vol. 31, issue 2, No 10, 639-659

Abstract: Abstract Why do informal markets resist formalizing, even when the gains of doing so outweigh its costs in the long run? While a number of responses to this question have been advanced, we discover that part of the reason could be located in the tacit knowledge (attributed to Polanyi, Hayek) embedded in the marketplace, on which market institutions run. This factor is not fully explored yet. Tacit (idiosyncratic, inarticulate, nonconscious) knowledge is acquired personally through experience and cannot be transferred or conveyed to anyone. This is the knowledge we use to act without knowing it in a propositional form. We present the case of one of India’s largest informal footwear cluster, located in the city of Agra. We show that informal markets, hinged on tacit knowledge, cannot evolve easily and therefore may remain locked-in, despite external pressures or incentives to formalize. The study shows that efforts to overcome informality and reaping the benefits of formalized market structures cannot be done without taking cognizance of the sticky intangible knowledge on which these markets rest.

Keywords: Informal markets; Path dependence; Trade credit; Tacit knowledge; Agra footwear cluster; Informal lending (search for similar items in EconPapers)
JEL-codes: B52 D83 E26 O17 O43 Z13 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s00191-021-00726-7

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