Unfolding Ease of Doing Business Led Interactive Dynamics between Formal and Informal Economy Using Leontief Model

Purpose of the Study: India has facilitated three dimensional ease of doing business regime and this advancement in the ease of doing business initiatives has augmented entrepreneurial growth. Entrepreneurial growth may lead to structural changes in the organized and unorganized sectors of the economy. This paper is an attempt to analyze the trends emerged in the formal and informal sectors due to entrepreneurial growth facilitated through ease of doing business environment. Design/Methodology/Approach: Relying on the Lewis theory which states that the informal sector shrinks with the growth of modernization, urbanization and industrialization I have applied Leontief input-output model to examine the behavior of the formal and informal economy. Data have been collected from reports of Doing Business 2019, Ministry of Corporate Affairs and CEIC and Indian Statistical Commission.Findings: It is concluded that Economic cycle leads to exponential growth in informal sector units along with the growth in the formal sector and entrepreneurial success with economic development leads to informal sector units convert themselves into formal ones. Both sectors are intertwined, interdependent and supplementary to each other. Practical implications: The attributes discussed in this study of formal and informal economy and there relation thereof shall be helpful for policy makers and economist to maximize the economic growth. Originality: Existing researches on formal and informal sector are based on qualitative approach while this research paper establishes an quantitative equation between informal and formal sector