The Relative Performance of Formal and Informal Sectors in India

Amarendra Sahoo and Thijs ten Raa

Chapter 14 in Efficiency and Input-Output Analyses:Theory and Applications, 2021, pp 225-242 from World Scientific Publishing Co. Pte. Ltd.

Abstract: We evaluate the relative performance of formal and informal sectors in India by looking into their productivity difference. Recognizing the intersectoral linkages in the economy, the competitive general equilibrium prices are computed; these signal the productivities. Our model synthesizes frontier analysis with the general equilibrium approach to generate shadow prices. The formal activities are found to be more productive than the informal. However, the informal services sector is as efficient as the formal one. There would be an overall productivity gain of 22% to the economy if factors were allocated to productive activities. The shadow prices from the model indicate that the formal capital and informal capital are scarce factors, while it has been the opposite for formal (regular) and informal (casual) labor. Formal labor is more productive than its informal counterpart; formal capital and informal capital are equally productive.

Keywords: Efficiency; Input-Output; Benchmarking; Performance Measurement; TFP; Environmental Policy Analysis; Mark-ups; Consumer Surplus; CES Demand; Linkages; Heckscher-Ohlin Trade Flows; Leontief (search for similar items in EconPapers)
JEL-codes: C67 D O12 (search for similar items in EconPapers)
Date: 2021
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Journal Article: THE RELATIVE PERFORMANCE OF FORMAL AND INFORMAL SECTORS IN INDIA (2009)
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