Informal Economy and Poverty Alleviation Essay

Informal Economy and Poverty Alleviation Essay

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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). At the same time the problem of poverty alleviation 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 various development programs. In this light the effect of informality on 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 hand, given the fact that financial systems in developing counties are not consistent with the needs of 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 dynamics of well-being of developing society? Which positive effects informality brings and why informality is a persistent phenomenon in developing countries? There exist established answers in this research field, and this paper plans to synthesize them to reveal new determinants and effects of informality. For example, in such countries as Kyrgyzstan the level of informal economy is about 40% of the total GDP (the number...

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...nteraction: Experimental Evidence from Microfinance. The Review of Economic Studies, 80(4), 1459–1483. doi:10.1093/restud/rdt016
Gerxhani, K., & van de Werfhorst, H. G. (2011). The Effect of Education on Informal Sector Participation in a Post-Communist Country. European Sociological Review, 29(3), 464–476. doi:10.1093/esr/jcr087
Hillenkamp Isabelle, Lapeyre Frédéric, Lemaître Andreia Securing Livelihoods: Informal Economy Practices and Institutions, Oxford University Press
Loayza, N. V., & Rigolini, J. (2006). Informality Trends And Cycles. doi:10.1596/1813-9450-4078
Webb, J. W., Bruton, G. D., Tihanyi, L., & Ireland, R. D. (2013). Research on entrepreneurship in the informal economy: Framing a research agenda. Journal of Business Venturing, 28(5), 598–614. doi:10.1016/j.jbusvent.2012.05.003

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