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(3
): 302-10
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Policy opportunities and challenges from the COVID-19 pandemic for economies with
large informal sectors
#MMPMIDC7316424
Narula R
ä-/-ä 2020[]; 3
(3
): 302-10
PMIDC7316424
show ga
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
(GVCs). 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 a par with formal firms within
industrial policy. I propose integration and registration, as opposed to
formalisation, 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.