Is there a causal relationship between unemployment and informal economy in Tunisia: evidence from linear and non-linear Granger causality

Sami Saafi, Meriem Haj mohamed () and Abdeljelil Farhat ()
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Sami Saafi: EAS – Faculty of Economic Sciences and Management of Mahdia, University of Monastir
Meriem Haj mohamed: EAS, FSEG Mahdia, University of Monastir Tunisia

Economics Bulletin, 2015, vol. 35, issue 2, 1191-1204

Abstract: This study investigates the dynamic relationship between informal economy and unemployment in Tunisia during the period of 1980–2009. Two different methodologies have been employed to test the Granger non-causality: the linear causality approach of Toda– Yamamoto (1995) and the non-linear causality method of Kyrtsou-Labys (2006). Both tests have yielded a strong evidence for unidirectional causality running from the unemployment to the informal economy. The empirical results show that high levels of unemployment lead to enhanced economic activities in the informal sector. The policy implication is that any measures aiming at a reduction of the informal economy without tackling the principal problem of unemployment would be counterproductive.

Keywords: Non-linear Granger causality; Unemployment; Informal Economy; Tunisia (search for similar items in EconPapers)
JEL-codes: C4 J6 (search for similar items in EconPapers)
Date: 2015-05-14
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Citations: View citations in EconPapers (6)

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