Testing three views about the determinants of informal economy: New evidence at global level and by country groups using the CS-ARDL approach

Salinas, Aldo; Ortíz, Cristián; Changoluisa, Javier; Muffatto, Moreno

doi:10.1016/j.eap.2023.03.016

Cited by 9 publications

(1 citation statement)

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“…We also use several control variables which are widely employed in the empirical literature on the informal economy. Thus, we use socioeconomic variables mentioned in the literature such as GDP per cápita (Autio and Fu, 2015; Estrin et al ., 2013; Dau and Cuervo-Cazurra, 2014; Salinas et al ., 2023), human capital (Tornarolli et al ., 2014; Salinas et al ., 2020) and unemployment (Thai and Turkina, 2014; Salinas et al ., 2019). We obtain these data from the World Bank’s WDI and Penn World Tables.…”

Section: Methodsmentioning

confidence: 99%

Exploring the relationship between productive structure and the informal economy: evidence from Latin American countries

Salinas,

Ortiz

2024

JEPP

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Purpose The purpose of this study is to examine the relationship between the productive structure and the size of the informal economy in Latin American countries.Design/methodology/approach The study employs econometric techniques for panel data covering the period from 2002 to 2017 and considering 17 Latin American countries. The evidence presented is based on the informal economy data generated by Medina and Schneider (2018) who estimate the size of the informal economy using a structural equation model and the share of manufacturing in total employment as a measure of the size of the manufacturing sector. Also, the study addresses the possible endogeneity bias in the relationship studied and makes the conclusions more robust, thus avoiding spurious correlations that weaken the findings.Findings The results indicate that most industrialized Latin American countries are associated with a smaller size of the informal economy.Practical implications The findings have important policy implications, as they suggest that Latin American economies need to switch the structure of the economy toward more sophisticated productive structures if they want to reduce the size of the informal economy. Thus, more efforts should be deployed to policies to diversify and upgrade economies.Originality/value The study contributes to the literature on the informal economy by connecting the country’s productive structure and informality. Specifically, the results show that the productive structure of countries is a plausible explanation for the size of the informal economy.

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