Informal Sector and Corruption: An Empirical Investigation for India

Nabamita Dutta (), Saibal Kar () and Sanjukta Roy ()

No 5579, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: India is a country characterized by a huge informal sector. At the same time, it is a country where the extent of corruption in every sector is remarkably high. Stifling bureaucratic interference and corruption at every stage of economic activities is one of the main reasons behind high participation in informal and unregulated sectors. For economies characterized by high inequality and poverty, a useful tool for the government to pacify social unrest, is to choose a lower level of governance allowing substantial corruption in the system. Based on a study of 20 Indian states, we empirically show that higher corruption increases level of employment in the informal sector. Further, our analysis also shows that for higher levels of lagged state domestic product, the positive impact of corruption on the size of the informal sector is nullified.

Keywords: state domestic product; corruption; informal sector; governance; India (search for similar items in EconPapers)
JEL-codes: C12 C31 D23 J21 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2011-03
New Economics Papers: this item is included in nep-dev
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Citations: View citations in EconPapers (9)

Published - published as 'Corruption and Persistent Informality: An Empirical Investigation for Indian States' in: International Review of Economics and Finance, 2013, 27, 357-373

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