Selim Raihan, Associate Professor, Department of Economics, University of Dhaka
Informal sectors constitute the dominant economic activities in Bangladesh as far as their contribution to the GDP and employment are concerned. Studies have indicated that around 80 per cent of the labour force in Bangladesh works in the informal economy and that the contribution of the informal sector to the GDP is around 64 per cent. The major informal sector in Bangladesh is the agricultural sector. In addition, a large number of small and medium enterprises (SMEs) and micro enterprises fall into the category of the informal sector. This paper conducts a Computable General Equilibrium (CGE) analysis on the informal sector in Bangladesh by reconstructing the social accounting matrix of Bangladesh, which decomposes the sectors into formal and informal. The simulation exercise suggests that the growth in the formal sector leads to a growth in the informal sector as well, and that there are positive impacts on household welfare and poverty. The major driving forces behind the growth in the informal sector would be the rise in the household demand for informal sector goods and services as well as the rise in demand for intermediate inputs. It is, however, important to note that though in absolute terms, the informal sector expands, in relative terms, such a scenario would result in the contraction of the informal sector as the formal sectors expands at a higher rate than the informal sector.