Some studies have projected that Brazil’s informal,
or underground, economy may be as large
as 40% of the country’s GDP. An article about
Brazil’s informal economy states:
Companies that operate outside the law
save money by avoiding tax and welfare
payments, allowing them to compete despite
being inefficient, but informality also
denies them the possibility of accessing
markets for capital and technology that
would improve their productivity.
Use your knowledge of endogenous growth
theory to explain the implications for economic
growth in Brazil if these companies operating in
the informal economy are denied access to capital
and technology.