The Informal Sector and Economic Development in Latin America: A Brief Study of the Chilean Model
A major hindrance to the achievement of steady economic growth is widespread informal employment, also known as the informal sector. The informal sector is a complex phenomenon which is pervasive in developing regions of the world such as sub-Saharan Africa, south Asia, and Latin America. It was my personal encounter with the informal sector while traveling through Peru in September of 2008 as a college student studying abroad that inspired me to further investigate this phenomenon. In this paper I will define what the informal sector is, the types of work performed within it, and how it came into existence. After a basic overview of the informal sector, the social problems and unproductiveness that widespread informal economic activity brings to a nation will be evident. The Chilean model for economic success is one that struggling Latin American economies can emulate, and this argument is well-supported after comparing data on Bolivia, Peru, and Chile and referring to various scholars who have researched the informal sector. Upon review of the economic and human development data and after exploring Chile’s historical successes and controversies (the reign of terror under Augusto Pinochet) we have gathered that institutions are the key to seeing economic development take place. Creating an atmosphere which honors the rule of law, democracy, and private property will transform countries that have been plagued by poverty for decades. Constructing a framework favorable to economic productivity will allow the development process to take its course. Once development takes place, the informal sector will gradually diminish.
Lee, Jordan (2009). The Informal Sector and Economic Development in Latin America: A Brief Study of the Chilean Model. Texas A&M University. Available electronically from