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The causes and consequences of informality in Peru

Norman Loayza ()

No 2007-018, Working Papers from Banco Central de Reserva del Perú

Abstract: Adopting a legal definition of informality, this article studies the causes of informality in general and with a particular application to Peru. It starts with a discussion on the definition and measures of informality, as well as on the reasons why widespread informality should be of great concern. Then, the article analyzes informality’s main determinants, arguing that informality is not single-caused but results from the combination of poor public services, a burdensome regulatory regime, and weak monitoring and enforcement capacity by the state. This combination is especially explosive when the country suffers from low educational achievement and features demographic pressures and primary production structures. Finally, using cross-country regression analysis, the article evaluates the empirical relevance of each determinant of informality. It then applies the estimated relationships to the case of Peru in order to assess the country-specific relevance of each proposed mechanism.

Keywords: Regulation; government performance; economic growth; informal economy (search for similar items in EconPapers)
JEL-codes: H11 K20 K30 O17 O40 (search for similar items in EconPapers)
Date: 2007-12
New Economics Papers: this item is included in nep-dev, nep-lam and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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