Does Country Risk Promote the Informal Economy? A Cross-National Panel Data Estimation

Ting Xu, Zhike Lv and Luoqi Xie

Global Economic Review, 2018, vol. 47, issue 3, 289-310

Abstract: This article investigates whether country risk plays an important role in determining the size of the informal economy. Using annualized panel data for a sample of 131 countries and regions covering 1999–2007, and controlling for a set of control variables, we find that country risk is a robust and significant determinant of the informal economy: a 1% increase in the country risk rating (decrease in the country risk) causes a 0.1% fall in the informal economy, and political risk has the largest effect, followed by economic risk. Moreover, the estimation results provide little evidence in support of an inverted-U relationship between urbanization and the share of the informal sector, which shed new light on the urbanization-the informal economy nexus.

Date: 2018
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DOI: 10.1080/1226508X.2018.1450641

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