 Does informality hinder financial development convergence?Can Sever and Emekcan Yücel Economic Systems, 2024, vol. 48, issue 2 Abstract: This paper sheds light on the role of informal economy, defined as all economic activities that are hidden from official authorities for various reasons, in financial development convergence. Using panel data from 156 countries over the period of 1991–2017, we find that financial development (as measured by credit as share of GDP) tends to converge across countries over time, particularly when informality is lower. As the size of informal economy becomes larger, however, financial development convergence weakens, and eventually can turn out to be divergence. This finding suggests that policies addressing informality can help countries with lower levels of financial development catch up with the countries with more developed financial systems. It also has implications for the evolution of cross-country income differences, considering the role of financial development in economic performance. In the last part of the paper, we find evidence consistent with this. The results show that higher informality is also associated with weaker income convergence across countries over time. Keywords: Financial development; Informality; Shadow economy; Convergence; Banking; Credit; International finance (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:48:y:2024:i:2:s0939362523001139 DOI: 10.1016/j.ecosys.2023.101174 Access Statistics for this article Economic Systems is currently edited by R. Frensch More articles in Economic Systems from Elsevier Contact information at EDIRC. |
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