Informality and development: The nonlinear effect

Andrée Kenne Fotié and Taoufiki Mbratana

Economics Letters, 2024, vol. 234, issue C

Abstract: This paper explores how the level of development affects informality. We find for 150 countries from 1996 to 2017 that the long-run relationship between the size of the informal economy and GDP per capita follows an inverted-N pattern. This nonlinear effect is heterogeneous across the conditional distribution of informality, and robust to different income-country groups and alternative specifications. Additionally, we identify rule of law and financial development as powerful determinants of informality. In terms of policy, the formation of reforms to the informal sector should take into account the country's level of development.

Keywords: Informality; Level of development; Nonlinearity; Panel data; Quantile regression (search for similar items in EconPapers)
JEL-codes: C21 C23 E26 O17 O5 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:234:y:2024:i:c:s0165176523004962

DOI: 10.1016/j.econlet.2023.111470

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