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Why Black Markets Thrive in Developing Countries

What's the Latest Development?

Countries transitioning from small, family-based business to larger, more efficient urban centers of production are finding it difficult to bring many workers into the fold. Faced with the prospect of long journeys to the city, which costs transportation fees and commuting time, it is no wonder why many capable workers prefer to remain in their villages with their families. "Daily commute times for low-income formal-sector workers often exceed three hours, and the average direct cost of transportation is equivalent to roughly two hours of work at the minimum wage. An eight-hour shift becomes an 11-hour shift for which net pay is only six hours." Transportation woes amount to a 45 percent tax on low-income formal sector workers. 

What's the Big Idea?

A fundamental principle behind developing a modern economy is the creation of a space where talents can cross pollinate. Imagine all the diverse skills required to produce and distribute a feature film, or build and sell cars. These kinds of skill pools are unavailable in local economies where education opportunities are fewer and smaller populations work against a diversity of talent. Governments' incentive to create urban work centers, of course, is tax dollars, which are difficult to collect from informal economies. When developing economies, therefore, governments must be sensitive to the life styles of their workers and make plans for their families.

Photo credit: Shutterstock.com

Read it at Project Syndicate

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