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The Informal Sector

Supply and Demand Linkages of
Informal Sector Enterprises

Hari Srinivas

The supply (backward linkages) and demand (forward linkages) conditions of informal sector enterprises can best be studied using the framework of analysis provided by the 'industrial organization analysis'1. This framework identifies the following criteria which have to be studied when the urban informal sector is studied as an 'economic unit'

    SUPPLY - Backward Linkages
  • raw materials used
  • access to credit facilities
  • process of manufacture
  • level of technology use
  • availability of basic services such as electricity, water etc.
  • type of ownership
  • education and skill requirement
  • supply of labour
  • locational characteristics (home-based, open space, squatter settlements)
  • wages provided to labourers

    DEMAND - Forward Linkages

  • price and quality of informal sector products/services
  • marketing procedure adopted
  • economic development levels (at the macro level)
  • purchasing power of consumers

1Industrial organization analyses is a menu or taxonomy of concepts such as allocative efficiency (maximum advantage for both customers and suppliers); dynamic efficiency (including dynamic aspects such as changing customers' preferences or technological progress); X-inefficiency (taking into consideration the efficiency with which firms make use of available technology and the rate at which they innovate); and other concepts.
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