The Informal Sector in Mexico: Determinants and Fundamental Explanations

Adopting a legal definition of informality, this paper studies the causes of informality in general and with a particular application to Mexico. It starts with a discussion on the definition and measures of informality. It then argues and provides evidence that informality is not only a reflection o...

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Bibliographic Details
Published in:Trimestre económico 2009-10, Vol.76 (4), p.887-920
Main Authors: Loayza, Norman, Sugawara, Naotaka
Format: Article
Language:Spanish
Subjects:
Demographics
Economic development
Mexico
Underground economy
Online Access:Get full text
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Summary:Adopting a legal definition of informality, this paper studies the causes of informality in general and with a particular application to Mexico. It starts with a discussion on the definition and measures of informality. It then argues and provides evidence that informality is not only a reflection of underdevelopment but may also be the source of further economic retardation. Next, the paper analyzes informality's main determinants, arguing that informality is not single-caused but results from the combination of poor public services, a burdensome regulatory regime, and weak monitoring and enforcement capacity by the state. This combination is especially explosive when the country suffers from low educational achievement and features demographic pressures and primary production structures. The paper then evaluates the empirical relevance of each determinant of informality to the specific case of Mexico. Adapted from the source document.
ISSN:0041-3011