Modeling the Informal Economy in Mexico. A Structural Equation Approach

Jose Brambila Macias
Authors registered in the RePEc Author Service: Jose Brambila-Macias

MPRA Paper from University Library of Munich, Germany

Abstract: This paper uses annual data for the period 1970-2006 in order to estimate and investigate the evolution of the Mexican informal economy. In order to do so, we model the informal economy as a latent variable and try to explain it through relationships between possible cause and indicator variables using structural equation modeling (SEM). Our results indicate that the Mexican informal sector at the beginning of the 1970’s initially accounted for 40 percent of GDP while slightly decreasing to stabilize around 30percent of GDP in the late 1980’s until our days. The model uses tax burden, salary levels, inflation, unemployment and excessive regulation as potential incentives or deterrents for the informal economy. The results confirm in particular the importance of salaries and excessive regulation as causes of the informal economy in Mexico and confirm a positive relation between informality and GDP.

Keywords: Informal Economy; Economic Growth; Structural Equations (search for similar items in EconPapers)
JEL-codes: C39 E26 O17 (search for similar items in EconPapers)
Date: 2008-04
New Economics Papers: this item is included in nep-dev, nep-mac and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Modeling the informal economy in Mexico:a structural equation approach (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:8504

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