Regulation, enforcement and informality: an analysis based on selected countries

The informal economy has been occupying a key position in the development-discourse ever since it was ‘discovered’ in the Ghana in the second half of the 20th century. A good deal of literature has grown up in the past forty years with efforts to ‘formalize’ the concept of informality and to integrate it with mainstream development economic theory. In particular, there is a strong controversy regarding the appropriate policy response to informality: Should it be left on its own or should the state intervene in the functioning of the informal sector? And, if the state needs to regulate the informal sector, what instruments of regulation can it possibly put to use? Based on the literature that has developed around these issues, the paper provides a formal econometric model of regulation and enforcement. Using secondary data collected for 46 countries from different sub-continents over the period between 1980 and 2008, this study explores the inter-relationship among regulation, enforcement and the level of informal employment for different countries across the world. The study establishes that regulation by itself has no role in reducing or aggravating the level of informality in an economy. Regulation will only affect levels of informality when it is enforced.Informal sector, Regulations, Panel data

Visible inequality, status competition, and conspicuous consumption: evidence from rural India

© Oxford University Press 2016. All rights reserved. If individuals care about their status, defined as their rank in the distribution of conspicuous consumption, a fall in the level of visible inequality is likely to cause them to spend more on conspicuous goods due to increased status competition. I examine this hypothesis using micro data from rural India. Employing an identification strategy based on instrumental variables, I find robust evidence that visible inequality has a negative and significant impact on household conspicuous consumption. Further, my results indicate that the increase in conspicuous expenditure in response to a fall in visible inequality is diverted from education spending which is perceived to have positive social externalities. This suggests that traditional redistributive policies that seek to reduce the level of economic inequality, by encouraging 'wasteful' spending of households, might have adverse welfare consequences

Status, Poverty and Trade

The conflict between the income based and nutrition based estimates of poverty is a widely debated issue in economic literature. This paper, using a two commodity framework, attempts to show that in presence of inequality, a status driven utility function can reconcile the conflict between the two measures of poverty. In addition, a simple general equilibrium model using such a utility function is constructed to analyse the implications of social inequality on relative prices and the emerging pattern of trade.Inequality, Nutrition good, Poverty, Status good, Trade, Utility

Regulation, governance and informality: an empirical analysis of selected countries

The Informal Economy provides employment to more than 60 per cent of the labour population in the developing world despite being a site unfettered by regulations and social norms of fairness governing pay and work conditions. In assessing the factors behind an informal agent’s decision to formalize, it is asserted that rigidity in regulatory mechanism is the primary cause that impedes the process of formalization. However whether flexible regulations can encourage formalization by making gains of formalization more accessible and certain remains a question. In this paper we argue that flexible regulations does not necessarily manifest into the incentives that are essential for formalization. Reducing rigidities in regulation has a significant pay off only in the ambit of good governance. More specifically we hypothesise that degree of intensity of regulation will hardly matter in containing informality; rather what matters is the quality of governance and capability of the institutions to put the regulations into effect. Using secondary data for 46 countries over the period between 1980 and 2008, we empirically investigate into the linkages between governance, regulation and informal employment by developing static and dynamic panel data models and establish that in curbing informality what turns out to be crucial is the interaction between quality of governance and regulation

Visible consumption, relative deprivation, and health: evidence from a developing country

Empirical research that explores the psychosocial relationship between relative deprivation (RD) and health has measured RD in terms of income although income is not easily observable. I extend this literature by shifting the focus from income to its visible manifestations − visible consumption expenditure. This is likely to more appropriately match both theory and intuition since a prerequisite for RD to have any kind of psychosocial impact on health is that RD must be visible, i.e., it must be measured based on a metric which is observable. Utilizing newly available data from India, in consonance with the psychosocial hypothesis that asserts a negative relationship between RD and health, I find that higher (visible) RD is associated with worse overall health. Moreover, my results suggest the negative association between RD is stronger for individuals living in rural areas and individuals who belong to the lower end of the income distribution

Peer effects in consumption in India: An instrumental variables approach using negative idiosyncratic shocks

© 2018 Elsevier Ltd This paper examines peer effects in consumption in context of a less developed country. Specifically, the question that I seek to answer is whether consumption expenditure of a household is influenced by that of its peers in a less developed country. To examine this question, I use newly available household level data from India. I define a household's peer group as other households living in its village/neighborhood. In assessing the influences of peers in this context, there are two key empirical challenges including shared group-level unobservables, and simultaneity of peer influences. I address these issues by using an instrumental variables/fixed effects approach that compares households in the same district but different villages/neighborhoods who are thus exposed to different sets of peers. In particular, I use plausibly exogenous variation in idiosyncratic expenditure shocks – which are accidental and negative in nature – faced by peers as instruments for peers’ consumption expenditure. Preferred specification suggests that a one standard deviation increase in average consumption expenditure of a household's peers causes the household's own consumption expenditure to increase by 0.42 standard deviations. Falsification tests and robustness checks support the validity of my results. My findings suggest that policies that influence a household's consumption will also affect the consumption of the household's peers through social interactions. This implies traditional analyses of consumption intervention programs that do not take into account such spillover effects will understate the total social impact of the programs, and hence lead to inaccurate evaluation of cost-effectiveness of such programs

Regulation, enforcement and informality: an analysis based on selected countries

It is claimed that introducing flexibility in regulation is a sufficient condition for curbing the level of informality in the developing world. This dissertation tries to test the validity of this claim using data for 46 countries over the time period 1980-2008 to explore the dynamics between regulation and informal employment. The empirical findings obtained using Panel Data regression point out that regulation does not significantly affect informality. What matters is the interaction between governance and regulation. Thus, it is established that the quality of governance and the institutions enforcing the regulation are more important in context of curbing the level of informality. In addition, the dissertation also tries to find out the most important instruments of regulation that a state can put to use in context of informality

Inequality, status effects and trade

In this paper we attempt to examine the role of social inequality and status effects in driving trade between two countries which differ systematically only in terms of income-distribution using a status-driven model of consumption involving a status and a non-status good. Our model illustrates that when trade opens up, the country characterized by a higher level of inequality is likely to export the non-status good to the country characterized by a lower level of inequality, thus, establishing the extent of inequality as a determining factor behind comparative advantage

Status, Poverty and Trade

The conflict between the income based and nutrition based estimates of poverty is a widely debated issue in economic literature. This paper, using a two commodity framework, attempts to show that in presence of inequality, a status driven utility function can reconcile the conflict between the two measures of poverty. In addition, a simple general equilibrium model using such a utility function is constructed to analyse the implications of social inequality on relative prices and the emerging pattern of trade

Inequality, status effects and trade

In this paper we attempt to examine the role of social inequality and status effects in driving trade between two countries which differ systematically only in terms of income-distribution using a status-driven model of consumption involving a status and a non-status good. Our model illustrates that when trade opens up, the country characterized by a higher level of inequality is likely to export the non-status good to the country characterized by a lower level of inequality, thus, establishing the extent of inequality as a determining factor behind comparative advantage