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Growth and informality: A comprehensive panel data analysis

Ceyhun Elgin and Serdar Birinci ()

Journal of Applied Economics, 2016, vol. 19, 271-292

Abstract: In this paper we empirically explore the impact of the presence of informal economies on long-run economic growth. Using a novel panel dataset of 161 countries over the period from 1950 to 2010 we obtain an inverted-U relationship between informal sector size and growth of GDP per capita. That is, small and large sizes of the informal economy are associated with little growth and medium levels of the size of the informal economy are associated with higher levels of growth. We also observe that in high (low) income economies, informal economy size is positively (negatively) correlated with growth. Moreover, when we decompose growth into several components using a simple growth accounting framework, we find that informality is mainly associated with growth in TFP and that this association is different in high and low-income economies.

Keywords: informal economy; growth accounting; panel data (search for similar items in EconPapers)
JEL-codes: E26 O17 O47 (search for similar items in EconPapers)
Date: 2016
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Journal of Applied Economics is currently edited by Germán Coloma and Mariana Conte Grand and Jorge M. Streb

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Handle: RePEc:cem:jaecon:v:19:y:2016:n:2:p:271-292