Informality in Latin America and the Caribbean

Year
2010
Type(s)
Author(s)
Norman V. Loayza, Luis Servén, and Naotaka Sugawara
Source
Business Regulation and Economic Performance, edited by Norman V. Loayza and Luis Servén, Pages 157-196. Washington, DC: World Bank. 2010
Url
http://documents.worldbank.org/curated/en/647141468324528897/Business-regulation-and-economic-performance

This paper studies the causes and consequences of informality and applies the analysis to countries in Latin America and the Caribbean. It starts with a discussion on the definition and measures of informality, as well as on the reasons why widespread informality should be of great concern. 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. Using cross-country regression analysis, the paper evaluates the empirical relevance of each determinant of informality. It then applies the estimated relationships to most countries in Latin America and the Caribbean in order to assess the country-specific relevance of each proposed mechanism.

(from World Bank Policy Research Working Paper 4888, March 2009).