TRADE - A CURSE FOR THE VULNERABLE?: The effect of trade openness on the informal economy.
Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
The relationship between openness to trade and the size of the informal economy has earlier not been widely examined and findings are diverse both in method and results. As classical trade theories predict an expansion of the formal economy with trade, the informal economy was traditionally expected to shrink with more trade, as the formal economy would absorb workers from informal arrangements. The view was challenged when the informal economy seemed to grow with an increased world trade, and it is therefore relevant to investigate therelationship further. Issues regarding the measurement of informality as well data availability has proved to be the largest obstacle for this area of research. This paper uses two different measurements and data sets, one observing the relationship at one point in time, and one observing the relationship throughout 24 years. One could expect that the two results would be in line, however the results differ. The cross-national empirical results using survey based data find a negative relationship between trade openness and the size of the informal economy in developing countries whilst the panel data using a macro-computed measurement of the informal economy fails to find a significant result.
Place, publisher, year, edition, pages
trade, informal economy, informality, growth, development
IdentifiersURN: urn:nbn:se:uu:diva-317470OAI: oai:DiVA.org:uu-317470DiVA: diva2:1081835
Svaleryd, Helena, Universitetslektor
Guvå, Tomas, Universitetslektor