The Importance Of Informity In Its Economy

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Subject area
Any sovereign state is to some extent concerned about the existence of informality in its economy. Although the subject of informal economy is broadly presented in interdisciplinary research, it remains understudied, especially from an entrepreneurship perspective in developing context (Castro, Khavul, & Bruton, 2014). The problem is particularly up-to-date in the light of millennium development goals, first of which is eradication of extreme poverty and hunger. Poverty alleviation programs mostly rely on the increasing involvement of ‘bottom quintile’ private sector in economic activity through development programs. The effect of informality on firm productivity and growth is much debated(Castro et al., 2014). On the one hand, informal economy is one of the main factors undermining the effectiveness of reforms in private sector development, because microfinance programs and other benefits, received from formality are underutilized. On the other side, given the fact that financial systems in developing counties are not consistent with the needs of the poor, the existence of informal sector is a response to the shortcomings of the formal sector (Bakhtiari, 2006). To which extent inefficiency, created by the presence of informal sector affects the well-being of developing society? What positive effects informality brings and why informality is a persistent phenomenon in developing countries?
Literature review
When talking about poverty reduction, a growing body of literature highlights the necessity of taking into account informal economy (Hillenkamp, Lapeyre& Lemaître, 2013). Informal economy is extremely multi-faceted subject, with complex social, legal and institutional determinants. Some authors see informality and...

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...ata panels related to the subject are available and updated on a regular basis (World Bank dataset, national statistical reports/ various world ranking indexes etc.). Previous studies have shown that level of informality is a procyclical flow variable, which adapts to the current economic conditions. So the informal economy can be modelled as a dynamic system. At this stage certain characteristics (state, control variables) should be obtained through the procedure described above (establishing causal relationship) that can allow to model it with a greater level of precision. The goal of dynamic programming here is in tracking the change of the size of informal economy during business cycles and studying its impact on socioeconomic environment. The results of research could be used for the suggestion of policy for mitigating the negative effects of informal economy.
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