Informal Sector Dynamics in Times of Fragile Growth: the Case of Madagascar

This article examines the dynamics of the informal sector in Madagascar during the 1995-2004 period, which was characterized by sustained growth that ended due to a major political crisis. As conventionally assumed by simple dualistic models, the informal sector indeed fulfils a labor-absorbing func...

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Grimm, Michael, Roubaud, François, Vaillant, Julia, Lann, Jay
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2014
Subjects
Informal economy
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Summary:This article examines the dynamics of the informal sector in Madagascar during the 1995-2004 period, which was characterized by sustained growth that ended due to a major political crisis. As conventionally assumed by simple dualistic models, the informal sector indeed fulfils a labor-absorbing function in times of crisis. However, informal business creation was also a major trend both during macroeconomic growth and during crisis and recovery. Growth in the informal sector was mostly extensive, with little job creation or capital accumulation. Although such a situation would be consistent with the existence of poverty traps, estimated marginal returns to capital are decreasing, which tends to reject this hypothesis.