摘要：While a large body of researches discusses the effects of international subcontracting on
firm dynamics, the present work deals with the similar issues of a domestic firm who
subcontracts to the informal sector in a typical developing world. Theoretically, we develop
a model that if the formal sector wage is higher than that of informal sector, the choice of
informal sector subcontracting and in-house R&D investment appears to be alternative
options to the firm to bypass expensive labour in the formal sector. We argue that the R&D
and labour productivity in formal sector are highly influenced by the informal wage but not
the formal sector one. Since the subcontracting can raise both supply and demand for
informal workers due to a rise of formal sector wage, the movement of informal sector wage
is uncertain and thereby, the formal sector R&D and labour-productivity are also ambiguous.
Thus, countries with a vast segment of lowly-paid informal workers exhibit
lowly-productive formal workers
关键词：Subcontracting, Informal Wage, Poverty, Labour Productivity, R&D
