This study investigates the empirical relationship between the level of urbanization and size of the informal economy using cross-country datasets proxying GDP and employment shares of urban informal sector. Our estimation results indicate that there is an inverted-U relationship between informality and the level of urbanization.That is, the share of the informal sector grows in the early phases of urbanization due to several pull and push factors; however, it tends to fall in the latter phases. We also show that factors like level of taxes, trade openness, and institutional quality tend to affect the size of the informal economy.

This study examines the impact of agrarian structures on income inequality over the long run. High land inequality increases income Gini coefficients in the urban sector as well as the rural sector, not only by creating congestion in the urban subsistence sector, but also by feeding the growth of the urban reserve army of labor, which pulls down the wages in the urban capitalist sector. An econometric analysis shows that the impact of initial land ownership distribution on both national and urban income distribution can persist for decades.

This study investigates various economic factors' impact in determining the relationship between functional income distribution and aggregate demand from both a theoretical and an empirical viewpoint. Inspired by Bhaduri and Marglin (1990), we base our analysis on a demand-driven growth model for an open economy that allows for either profit-led or wageled regimes. Our results strongly indicate that a higher level of trade openness is associated with a lower probability of being wage-led. We find evidence that lower wage inequality makes an economy more wage-led and that countries with a greater private credit-to-GDP ratio are more likely to be profit-led.

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