Three Essays on Informality, Dual Economies and Structural Transformation

The thesis, Three Essays on Informality, Dual Economies, and Structural Transformation, brings together three independent yet conceptually connected essays developed during my doctoral research. Collectively, they explore how informality interacts with key macroeconomic aspects, that is, fiscal, financial, and behavioural channels, to influence the dynamics of growth and transformation, particularly in developing economies. The overarching motivation is to understand how structural heterogeneity constrains the functioning of macroeconomic policies and why countries with seemingly similar policy frameworks often experience divergent outcomes. Broadly, this dissertation seeks to situate informality at the centre of development macroeconomics, highlighting the intricate interlinkages between public finance, fiscal policy and macrobehavioural responses. It offers a modest attempt to revisit the role of informality not as a residual feature of underdevelopment but as a core structural characteristic that shapes the effectiveness of macroeconomic management. In doing so, the thesis underscores the importance of recognising informality’s implications for public debt dynamics, productivity growth, and sustainable transformation. Economic development, by its very nature, is unequal and heterogeneous. In many developing countries, structural dualism, the coexistence of formal and informal sectors, remains a defining feature of production, employment, and income distribution. This divide profoundly affects macroeconomic management, influencing the effectiveness of fiscal policy, the depth of financial intermediation, and the potential for long-term productivity gains. Yet, despite extensive research, the interconnections among informality, fiscal capacity, and structural transformation remain insufficiently understood. Against this backdrop, the three essays in this dissertation collectively advance the discourse on informality’s macroeconomic implications. Each essay addresses a specific dimension of the problem, but together they construct a coherent analytical narrative that positions informality as a binding structural constraint on the process of economic transformation. The central proposition is that informality is not merely an outcome of underdevelopment but a constitutive element that shapes the transmission and impact of macroeconomic policy itself.