Informal Sector and Corruption: An Empirical Investigation for India

35 Pages Posted: 21 Mar 2011

See all articles by Nabamita Dutta

Nabamita Dutta

University of Wisconsin - La Crosse

Saibal Kar

Centre for Studies in Social Sciences, Calcutta; Institute of Labor Economics (IZA)

Sanjukta Roy

World Bank Institute

Abstract

India is a country characterized by a huge informal sector. At the same time, it is a country where the extent of corruption in every sector is remarkably high. Stifling bureaucratic interference and corruption at every stage of economic activities is one of the main reasons behind high participation in informal and unregulated sectors. For economies characterized by high inequality and poverty, a useful tool for the government to pacify social unrest, is to choose a lower level of governance allowing substantial corruption in the system. Based on a study of 20 Indian states, we empirically show that higher corruption increases level of employment in the informal sector. Further, our analysis also shows that for higher levels of lagged state domestic product, the positive impact of corruption on the size of the informal sector is nullified.

Keywords: informal sector, corruption, state domestic product, governance, India

JEL Classification: C12, C31, D23, J21

Suggested Citation

Dutta, Nabamita and Kar, Saibal and Roy, Sanjukta, Informal Sector and Corruption: An Empirical Investigation for India. IZA Discussion Paper No. 5579. Available at SSRN: https://ssrn.com/abstract=1790690

Nabamita Dutta (Contact Author)

University of Wisconsin - La Crosse ( email )

1725 State Street
La Crosse, WI 54601
United States

Saibal Kar

Centre for Studies in Social Sciences, Calcutta ( email )

R-1, Baishnabghata Patuli Township
Calcutta, 700 094
India
91-33-2462 7252 (Phone)
91-33-2462 6183 (Fax)

HOME PAGE: http://www.cssscal.org

Institute of Labor Economics (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Sanjukta Roy

World Bank Institute ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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