Template-type: ReDIF-Paper 1.0
Author-Name: Narula, Rajneesh
Author-Email: r.narula@henley.ac.uk
Author-Workplace-Name: John H. Dunning Centre for International Business, Henley
	 Business School, University of Reading
Title: Policy opportunities and challenges from the Covid-19 pandemic for economies 
	 with large informal sectors
Abstract: In the developing world, the informal economy can account for as much as
	 80% of the population. I focus on the urban component of informality,
	 where both informal employment and informal enterprises are especially
	 vulnerable to the pandemic-induced economic shock. I explain the complex
	 nature of informality, some of the reasons for its persistence, and its
	 interdependency with the formal economy, especially in the manufacturing
	 sector, through global value chains. Large firms (whether MNEs or
	 domestic firms) sub-contract considerable activity to informal
	 enterprises, but this is precarious in character. I suggest the crisis
	 provides the circumstances for greater active engagement with informal
	 actors, by placing informal enterprises on par with formal firms within
	 industrial policy. I propose integration and registration, as opposed to
	 formalization, and the provision of state support without taxation. The
	 role of the state is also crucial in matchmaking, creating incentives
	 for GVCs to engage with informal actors systematically, and to reduce
	 the transaction costs for informal actors in such engagement. These
	 actions are likely to provide benefits in the longer run, even if
	 they prove costly in the short run.
Classification-JEL: E26, O17, O19, O25
Keywords: informal enterprises, dual economies, urban poor, linkages, employment,
	 policy
Series: UNU-MERIT Working Papers
Creation-Date: 20200529
Number: 2020-024
File-URL: https://unu-merit.nl/publications/wppdf/2020/wp2020-024.pdf
File-Format: application/pdf
File-Size: 275 Kb
Handle: RePEc:unm:unumer:2020024