FINANCIAL DEVELOPMENT, FINANCIAL INCLUSION AND INFORMALITY: NEW INTERNATIONAL EVIDENCE

Marã­a Paula Vargas () and Erick Lahura
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Marã­a Paula Vargas: Department of Economics, Pontificia Universidad Católica del Perú (PUCP), San Miguel 15088, Peru

Global Economy Journal (GEJ), 2022, vol. 22, issue 03, 1-42

Abstract: This paper explores the empirical relationship between informality and several indicators of financial development (FD) and financial inclusion (FI). We exploit a panel of 152 countries with annual information between 1991 and 2017. Using panel cointegration techniques, we find evidence of a negative long-run relationship between informality and FD/FI for different groups of countries. Moreover, exogeneity tests indicate that some FD/FI indicators cause less informality. Specifically, we find that in developing countries FD reduces informality when measured as “financial credit†and “bank credit†, whereas FI reduces informality when measured as “number of bank accounts†. These results suggest that higher credit and more bank accounts have contributed to reducing informality in developing countries in the long run. Additionally, we find evidence of double causality between informality and other FD/FI indicators in developing and Latin American countries.

Keywords: Financial development; financial inclusion; informality; panel cointegration (search for similar items in EconPapers)
JEL-codes: C33 E26 G20 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1142/S2194565923500070

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