Informal Economy and Trade in the Agricultural Sector

This paper examines how incorporating the informal economy influences the estimated benefits of international trade liberalization. Using a structural gravity framework, we quantify the impact of Free Trade Agreements (FTAs) while explicitly accounting for the presence of shadow (informal) economic activity among trading partners. Specifically, we assess the expected welfare gains from the recently concluded EU–India FTA under a counterfactual scenario in which the informal agricultural sector is integrated into the formal economy.