Does financial development reduce the size of the informal economy in sub‐Saharan African countries?

Henri Njangang (), Luc Ndeffo Nembot and Joseph Pasky Ngameni

African Development Review, 2020, vol. 32, issue 3, 375-391

Abstract: This paper contributes to the literature in an attempt to understand the determinants of the informal economy by investigating the relationship between financial development and the size of the informal economy using an unbalanced panel data of 41 sub‐Saharan African (SSA) countries over the period 1991–2015. The paper applies different techniques such as ordinary least squares, fixed effects, system generalized method of moments, and quantile regression. The results show that financial development and its square are important determinants of the informal economy in SSA. Across a number of specifications, we find that financial development reduces the size of the informal economy and that there is a U‐shaped relationship between financial development and the informal economy.

Date: 2020
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https://doi.org/10.1111/1467-8268.12446

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Working Paper: Does financial development reduce the size of the informal economy in Sub-Saharan African countries? (2018)
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