What Sustains Informality? A Study of the Interactions between Formal and Informal Sector Firms. Issue 7 (3rd July 2022)

• Record Type: Journal Article
• Authors: Mishra, Ajit
• Is Part Of: Journal of development studies. Volume 58:Issue 7(2022)
• Page Start: 1403
• Page End: 1415
• Publication Date: 2022-07-03
• Subjects: Informal sector -- income distribution -- market size -- quality choice -- intermediate goods; O15 -- O17 -- K4 -- H8; Economic development -- Periodicals; Economic history -- 1945- -- Periodicals; Developing countries -- Economic conditions -- Periodicals; Développement économique -- Périodiques; Histoire économique -- 1945- -- Périodiques; Pays en voie de développement -- Conditions économiques -- Périodiques; 338.91
• DOI: 10.1080/00220388.2022.2061853
• Languages: English
• ISSNs: 0022-0388

Abstract

Abstract: This paper considers two vertical links between informal and formal sector firms and studies their implications. First, we model a situation where final products produced by the formal and informal sector firms are differentiated in terms of quality and consumption demand for the informal sector firm is related to the distribution of income. Less well-off consumers generate demand for the low-priced, low quality good produced by the informal sector. Our paper studies the implications of this link for the size of the informal sector. Second, we analyse a situation where, instead of competing with the formal sector firm, the informal sector firm produces an intermediate good for the other firm.