Abstract
A core prediction of the Development Theory was that the informal sector in developing economies would rapidly decline with growth. In reality, the informal sector declined very slowly even in fast-growing, developing economies and still remains huge. This is because the governments invested in the informal sector (which incorporated agriculture) to pre-empt the possibility of a stagnant agriculture choking the growth of the formal sector and increasing impoverishment. The sector’s growth implied substantial improvement in employment conditions for the bulk of the workforce that it employed. In fast-growing developing economies, the slow decline of informality, therefore, did not mean the deterioration of employment conditions. India’s experience provides good illustrations in this context.
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Notes
A qualification needs to be added: the reference here is to those colonies in which Europeans did not settle in large numbers.
Boeke (1953).
This is how Lewis (1954) had distinguished between the informal and the formal sectors though he did not use these terms. He called the two sectors traditional and modern.
See Ghose (2010) for an elaborate discussion of the point.
We have checked that the trends would have remained the same had we not excluded “public administration and defence”.
This definition of the informal sector is substantively the same as that provided by the International Conference of Labour Statisticians of 1993.
It is worth recalling a study – Ranis and Stewart (1999) – which distinguished between traditional (or stagnant) and modernizing (or dynamic) components of the informal sector and showed the traditional segment expanding in the Philippines (which had poor economic growth) and the modernizing segment expanding in Thailand (where there was rapid economic growth).
This definition is substantively the same as that given by the International Conference of Labour Statisticians of 2003.
Ghose (2016).
See Ghose (2016) for evidence.
Kucera and Xenogiani (2009) suggest that the trend is fairly general but do not provide any evidence.
See Ghose (2016) for evidence and discussion.
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Ghose, A.K. Informality and Development. Ind. J. Labour Econ. 60, 1–16 (2017). https://doi.org/10.1007/s41027-017-0080-5
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DOI: https://doi.org/10.1007/s41027-017-0080-5