Does informal economy impede economic growth? Evidence from an emerging economy

Nguyen Vinh Khuong, Malik Shahzad Shabbir, Muhammad Safdar Sial and Thai Hong Thuy Khanh

Journal of Sustainable Finance & Investment, 2021, vol. 11, issue 2, 103-122

Abstract: The objective of this study is to re-examine the impact of the informal economy on economic growth in Pakistan. This study first computed the informal economy through currency demand equation and then the adopted auto-regressor distributed lags (ARDL) technique for data analysis. The result indicates that 56% informal economy of gross domestic product (GDP) exists in Pakistan. The Wald F-test shows that the overall model is statistically significant because the value of this test (13.4) is more than the upper and lower bounds values. Whereas Engle-Granger causality test describes that the growth rate of real GDP causes the Granger to GDP at 5%. This study tries to solve these issues and give a new policy implication for policymakers to control the informal economy and make sure that this sector will convert into a recorded or reported form.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:taf:jsustf:v:11:y:2021:i:2:p:103-122

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DOI: 10.1080/20430795.2020.1711501

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