Essays on informality and economic development

Chapter 1: Informal trade is pervasive between sub-Saharan African countries. This study examines the relationship between trade informality and trade costs. More specifically, using an augmented gravity model, I exploit time and custom point variation in the introduction of a border facility which is aimed at reducing border delays and corruption. I find a significant decrease in trade informality in the second quarter after the introduction of an OSBP, with indications that this change is mainly driven by a fall in large-scale informal trade. I examine whether this result can be explained by formalisation of individual cross-border traders by using first-hand data set of traders operating at two border towns between Kenya and Uganda. I find that few traders formalise despite the reduced costs associated with the introduction of the border facility, and that trade costs and border crossing choices are not only associated with export restrictions, but are also gendered. Chapter 2: This study revisits the trade-poverty nexus by examining the extent to which exposure to trade is related to the poverty status of rural households in Uganda. By matching panel data of agricultural households with trade flowdata disaggregated by border posts, I find that exposure to regional imports is associated with a reduction in the likelihood of a household being poor. This negative relationship is observed to be stronger for informal than formal trade. I explore potential mechanisms of this relationship, including commercialisation and employment. Evidence suggests that informal trade may play a larger role than formal trade in promoting localised economic development. Chapter 3: Should cash transfer programmes restrict consumer choice? For example, should food assistance delivered in cash be restricted to food and exclude temptation goods such as alcohol and tobacco? Theoretically, restrictions reduce the consumption of restricted goods, but do not necessarily increase the consumption of unrestricted goods. Restrictions may encourage the creation of a black market in which transfer recipients resell goods at a loss. Thewelfare impact on transfer recipients is negative. We test these theoretical predictions empirically by exploiting a natural experiment in a refugee settlement in Kenya. Consistent with theory, we find that a change in cash transfer modality from one restricted to food purchases to one unrestricted do not significantly decrease food consumption. Rather, we find significant positive effects on non-food expenditure, temptation-goods spending, and subjective well-being. Our study reveals the existence of a massive black market for the resale of unrestricted goods. We uncover heterogeneity in effects by household indebtedness – an issue faced by 89 percent of the surveyed households