ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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India's Informal Trade with Nepal

The large and vibrant informal trade between India and Nepal continues to thrive despite trade liberalisation in the two countries. This calls for an in-depth analysis of the institutional mechanism that drives informal trade and the reasons for such trade to take place. An analysis carried out on the basis of a field survey in the border areas of Nepal and India reveals that informal traders have developed efficient institutional mechanisms for contract enforcement, information flows, risk sharing and risk mitigation. Analysing the relative importance of trade policy barriers vis-a-vis institutional and other non-economic factors influencing informal trade flows the study shows that informal traders provide better solutions to circumvent the inadequacies and inefficiencies of the formal trade channel.

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