Informality and poverty

Working Paper 2009-146


Poverty and informal employment are often regarded as correlated phenomena. Many empirical studies have shown that informal employment has a causal impact on household poverty, mainly through low wages. Yet other studies focus on the reverse causality from poverty to informality, arising from a range of constraints that poverty poses to job holders. Only recently have empirical researchers tried to study the simultaneous two-way relationship between poverty and informality. However, existing studies have relied upon cross sectional data and static econometric models.

Authors: Francesco Devicienti, Fernando Groisman , Ambra Poggi.

Keywords: poverty, informality, state dependence, dynamic bivariate probit model with random effects.
JEL: C23, I30, J42.