Law and Development essay

Informal Sector in Developing Countries and the Level of Regulations

Introduction

The importance of the informal sectors in the developing economies is so vital that the governments cannot altogether ignore them as they make significant contribution to the economic development of the countries concerned . The informal sectors in the developing economies are often represented by those activities which are relatively small and because of their sizes they become unregulated and untaxed . Usually the informal sectors contribute more than half of the GDP of the developing nations and also account for more

than 50 percent of the employment opportunities prevalent in the countries . But in spite of the advantages these entities contribute to the respective developing countries they also pose a problem in respect of the cost of taxing and realizing the revenue from these informal sector entities . Another important factor that weighs with the governments is that because of the presence of the informal sector , the production resources are often drifted towards an environment devoid of any sort of regulation for resolving any disputes and that is detrimental to the organized development of the economy Mostly the various forms of informalities result from the legislations that the governments introduce to curb the flowing of more resources to the informal sector . Given below is an analysis of the nexus between the informal sectors and the governmental regulations that are prevalent in the developing economies

Definitions of Informal Sector

The International Labour Organisation (1972 ) defines the informal sector as enterprises with all or most characteristics in a list that includes `family ownership , small scale of operations and labour intensive methods ' Castells et al (1989 ) offer the following context-specific definition : informal activities are a `process of income generation ' that is `unregulated by the institutions of society in a legal and social environment in which similar activities are regulated

Informal Sectors and the Regulations

According to Palmade (2005 ) Informality traps most workers and firms in low productivity operations , while it distorts the playing field in favor of well connected companies ' Precisely this is the reason why the governments want to go in to the process of adopting more regulations to redirect the production resources to formal sectors which is more organized and can be subjected to governmental controls . According to Palmade (2005 ) informality in a developing economy may take the forms of Labour Informality , Product Informality , Energy Informality , Land Informality and Tax Informality . These informalities are mostly the result of the regulations framed by the developing economies . For instance , the labour informality is the direct result of the various labour laws and other regulations that ensures the intended benefits and protection to the workers . The Minimum Wages Act is a fitting example for the development of labour informality . Similar situations emerge in the case of other informalities also . Examples of Energy informality may be found in enjoying the low cost energy on the premise of technical losses and the incidence of stamp duties for registration on the arbitrary market values and cumbersome procedures for...