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Case study (4) Focus on Impact of a Dual Economy

Informal sector's role in economy

Opening up a country's economy and becoming more outward oriented and export led may create a dual economy.

Dual economy

A dual economy exists where there are two different economic systems operating within one country. This is more common in less developed countries, where one system, often referred to as the informal sector, aids local needs and another exists merely for global exportation purposes.

Source: Wiki answers

Many developing countries have large and burgeoning informal sectors. Read the article from Tanzania's Daily News and consider the questions below.

Follow the link below if you would prefer to read the article in a new web window:

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  1. Explain why the informal sector is so called.
  2. Identify the types of goods and services that might be sold in the informal sector.
  3. Explain the reasons why a large informal sector may develop when a market oriented and export promoting strategy is being followed.
  4. In the case of Tanzania identify the proportion of the economy that is bought and sold within the informal sector. Explain how this figure affects the accuracy of using gross domestic product as a measure of the size of the economy and the scale of economic activity.
  5. Explain why governments might want to reduce the size of the informal sector.
  6. Analyse the reasons why governments might be prepared to allow a large informal sector to operate.