Stringent regulations coupled with corruption generate and sustain extra legal or informal transactions in the developing countries. Does trade related reform discourage informal activities and corruption? This paper attempts to analyze such a phenomenon. An import competing firm allocates...

Lucas (1976) argued that interventionist policies in macroeconomics may fail because the policies themselves affect the optimal behavior of private agents and hence the associated response parameters. We extend Lucas's argument and propose that a highly controlled and regulated environment leads...