Formal and Informal Economies for DR

1. Formal and Informal
Economies
Prof. Torres

2. Formal and informal economy in the
Dominican Republic.
• Socioeconomic impact of formal economies.
• Socioeconomic impact of informal economies.
• Dominican Republic and DR-CAFTA: positive and negative aspects

3. What is an example of formal economy?
• When we consider the developing economy of a nation we can think of
many productive activities and how the impact.
• Some are more or less significant in number and depend on different traits.
• Jot down on some examples of activities that may be defined under the
formal economies of a nation, and why you would define them as such.

4. Formal Economy
• Refers to all economic activities operating within the official legal
framework that are paying taxes on all generated incomes.
• People working in civil service, public sector units, government service,
defense, multi-national/national/private companies, schools, colleges,
research institutes, management organizations, banks etc.… all belong to
the Formal Sector.

6. Characteristics of Formal Economy
• The formal economy:
• (1) has an organized system of employment with clear written rules of
recruitment, agreement and job responsibilities.
(2) has a standardized relationship between the employer and the employee is
maintained through a formal contract.
(3) the employee is expected to work for fixed hours and receives fixed salaries in
addition to incentives and perks. He works under a decent work environment and is
entitled to benefits such as leave, savings, loans etc. He has an organized association
or union where his official grievances are addressed. Besides, he is covered under
social protection benefits such as life insurance, health insurance, pension, gratuity
etc.

7. • People working in civil service, public sector units, government service,
defense, multi-national/national/private companies, schools, colleges,
research institutes, management organizations, banks etc.…all belong to the
Formal Sector.

8. What are some examples of informal
economies?
• In developing nations we also have a label for activities that take place
outside of the formal economies. These activities are trending in today’s
world due to lack of refined skills, levels of achieved education, citizen
legality in a domestic site, lack of job opportunities in the formal system and
also due to the genuine wish that many people have of having certain levels
of independence.
• Jot down a few examples of informal economies that you recognize are
relevant and significant to your surroundings.

9. The informal economy
• (1) does not have any written rules or agreements.
(2) it exists merely on verbal understanding.
(3) it does not have fixed wages or fixed hours of work and mostly relies
on daily earnings.
(4) in most cases, the work atmosphere is congested and unhygienic.
(5) the workers in this type of economy usually fail to come together and
address their problems through an association or a group. They have poor
awareness levels regarding social protection schemes, are unable to make
savings and do not see the necessity of insuring themselves

11. • People working as small farmers, street vendors, small traders, micro-
entrepreneurs, home-based workers, cobblers, rag-pickers, porters, laborers,
artisans, etc…all belong to the Informal Sector.

12. Why developing countries should create
more formal jobs?
• Due to unstable work in some formal settings, people are forced to seek
informal job opportunities in their hometown or migrate to different sites
and seek informal activities.
• Informal firms, which are not legally registered with the government, are
primarily small, household-run businesses that often lag in productivity far
behind formal firms, which are legally registered.

13. • As a result, countries characterized by an abundance of informal firms suffer
from low aggregate productivity.
• Likewise, the prevalence of employment in informal businesses tends to
decrease as countries become richer.

14. • The informal economy thrives in a context of high unemployment,
underemployment, poverty, gender inequality and precarious work. It plays a
significant role in such circumstances, especially in income generation,
because of the relative ease of entry and low requirements for education,
skills, technology and capital. But most people enter the informal economy
not by choice, but out of a need to survive and to have access to basic
income-generating activities.

15. • The informal economy is marked by acute decent work deficits and a
disproportionate share of the working poor. Ample empirical research has
shown that workers in the informal economy face higher risks of poverty
than those in the formal economy. As a result of these and other factors,
there is a significant, but not complete, overlap between working informally
and being poor and vulnerable.

16. • While some activities offer reasonable livelihoods and incomes, most people
engaged in the informal economy: are exposed to inadequate and unsafe working
conditions, and have high illiteracy levels, low skill levels and inadequate training
opportunities; have less certain, less regular and lower incomes than those in the
formal economy, suffer longer working hours, an absence of collective bargaining
and representation rights and, often, an ambiguous or disguised employment status;
and are physically and financially more vulnerable because work in the informal
economy is either excluded from, or effectively beyond, the reach of social security
schemes and safety and health, maternity and other labor protection legislation.

17. What does D.R. CAFTA stand for and what
does it allow?
• D.R. CAFTA is the first free trade agreement between the United States and
a group of smaller developing economies: our Central American neighbors
Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, as well as the
Dominican Republic.

18. CAFTA-DR and Creating Opportunities in
the Region
• The CAFTA-DR promotes stronger trade and investment ties, prosperity, and
stability throughout the region.
• Combined, the countries in the CAFTA-DR would represent the United States' 18th
largest goods trading partner.
• Trade and economic growth promotes prosperity and stability and opportunities for
citizens within their home country. CAFTA-DR requirements for rule of law and
transparent and fair procedures in government actions create a better climate for
investment and business. A better economic environment builds communities
where citizens can thrive and youth have opportunity for a productive future at
home.

19. • Originally, the agreement encompassed the United States and the Central
American countries of Costa Rica, El Salvador, Guatemala, Honduras,
and Nicaragua, and was called CAFTA. In 2004, the Dominican
Republic joined the negotiations, and the agreement was renamed CAFTA-
DR.

20. • With the addition of the Dominican Republic, the trade group's largest
economy, the region covered by CAFTA-DR is the second-largest Latin
American export market for U.S. producers, behind only Mexico, buying
$29 billion of goods in 2015. Two-way trade amounted to about $50 billion
in the same year.

21. Advantages for D.R.
• Transparency
• Protection for intellectual property
• Improvement of foreign investments
• Improved environmental policies
• Resolution of disputes
• Improved facilities for customs
• Improved labor laws
• Improved policies for government purchasing

22. • D.R. CAFTA gave way to a general climate of improvement in the
Dominican nation and allowing a number of reforms to become possible as
well as structural changes in its market.
• It has also allowed to attract foreign investments.

23. Treaty has also contributed to…
• Automation of airports and ports
• Cost reductions
• Elimination of consular invoicing
• Reduction of time goods stay in custom ports, waiting to be placed in the market
• DGA ( Direccion General de Aduanas ), General Directory of Customs; has
improved in general
• Reduction of paperwork and time in clerical processing

24. Generalization
• Investigate and survey residents in the Dominican nation and identify 5 formal and
5informal economies. How has the pandemic affected their economy?
• List 10 economies. Create a compare and contrast chart of impact of formal and
informal economies in the Dominican nation.
• State the advantages and disadvantages of the 10 economies you have chosen.
• Reflection: In a world where entrepreneurship is incentivized as early as formal
secondary education, where do you see advantages and disadvantages for the formal
and informal economies? ( write at least 100 words)