Growing apart or moving together? Synchronization of informal and formal economy cycles

Ceyhun Elgin, Ayhan Kose, Franziska Ohnsorge and Shu Yu

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We study the degree of synchronization between formal- and informal-economy business cycles. Using a comprehensive database of informal activity that covers a wide range of informality measures from almost 160 countries over the 1990-2018 period, we report two major results. First, fluctuations in informal-sector output are strongly positively correlated with those in formal-sector output. In contrast, fluctuations in informal employment are largely uncorrelated with those in formal-sector output. Second, movements in the formal economy tend to spillover to the informal economy. Using a novel set of instrumental variables, we show that fluctuations in formal-sector output “cause” movements in informal-sector output.

Keywords: Informal economy; self-employment; business cycle (search for similar items in EconPapers)
JEL-codes: E26 E32 J46 O17 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2021-09
New Economics Papers: this item is included in nep-cwa, nep-iue and nep-mac
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Citations: View citations in EconPapers (4)

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https://cama.crawford.anu.edu.au/sites/default/fil ... kose_ohnsorge_yu.pdf (application/pdf)

Related works:
Working Paper: Growing Apart or Moving Together? Synchronization of Informal and Formal Economy Cycles (2021)
Working Paper: Growing Apart or Moving Together? Synchronization of Informal and Formal Economy Cycles (2021)
Working Paper: Growing Apart or Moving Together? Synchronization of Informal and Formal Economy Cycles (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2021-77

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