Informal economy and extractive institutions

Abstract

The paper aims at assessing the impact of the extractiveness of institutions on the size of the informal economy. After the identification of the variables suitable to proxy the distinct features of institutions, among which their extractiveness, the paper offers a battery of cross-section regressions over two large samples of developed and developing countries. The results suggest that the extractiveness of institutions is a significant determinant of the size of the informal economy and that greater informality is associated with a higher perceived distrust in formal institutions. The results are robust to the inclusion of standard controls, as well as proxies for culture, generalized trust and generalized morality.

An estimation of the informal economy in the agricultural sector in the EU‐15 from 1996 to 2019

“…Moreover, the level of education is a key factor affecting the level of IE (Christiaensen & Martin, 2018; ILO, n.d.; Salahodjaev, 2015). Agriculture provides opportunities for the unskilled labor force, which is more inclined toward informal work compared with their highly skilled counterparts, to acquire sources of financial income (Fracasso et al, 2018; Saraçoğlu, 2020). Another exogenous factor inducing growth in the IE in agriculture is the necessity for local farmers to compete for unskilled labor with other sectors, such as mining (Hilson et al, 2017).…”

“…In some cases (cf. Fracasso et al, 2018; Harriss‐White, 2010), the IE in agriculture can serve as a source of employment and income due to a lack of opportunities in the formal sector (cf. Fracasso et al, 2018; Harriss‐White, 2010; Loayza & Rigolini, 2006; Medina et al, 2017; Saraçoğlu, 2020).…”

“…Fracasso et al, 2018; Harriss‐White, 2010), the IE in agriculture can serve as a source of employment and income due to a lack of opportunities in the formal sector (cf. Fracasso et al, 2018; Harriss‐White, 2010; Loayza & Rigolini, 2006; Medina et al, 2017; Saraçoğlu, 2020). In this way, the IE can act as a source of supplemental income and can, therefore, contribute to Gross Domestic Product (GDP) growth, and also increase the total welfare of a country (Schneider & Hametner, 2014).…”

Measuring the Immeasurable: The Evolution of the Size of Informal Economy in the Agricultural Sector in the EU-15 Up to 2019

“…Agriculture provides opportunities for the unskilled labor force which is more inclined towards informal work compared to their highly skilled counterparts to acquire sources of financial income (Saracoglu, 2020) as in industrialized world there are less positions available for unskilled labor (Fracasso, Marzetti & Coletto, 2018). For the same reasons informal employment in agriculture is one of the sources of living for refugees and illegal migrants (Altındağ, Bakış & Rozo, 2020).…”

Inequality, social capital, and varieties of capitalism in Latin America

“…In this sense, it is reasonable to observe that societies that have high levels of an informal economy (E) are associated with lower levels of social trust. This relationship is possible when societies have power relations and extractive institutions (Coletto et al, 2018).…”