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Does financial development reduce the size of the informal economy in sub‐Saharan African countries?
Author(s) -
Njangang Henri,
Nembot Luc Ndeffo,
Ngameni Joseph Pasky
Publication year - 2020
Publication title -
african development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.654
H-Index - 32
eISSN - 1467-8268
pISSN - 1017-6772
DOI - 10.1111/1467-8268.12446
Subject(s) - ordinary least squares , economics , informal sector , quantile regression , panel data , quantile , economy , economic system , econometrics , economic growth
This paper contributes to the literature in an attempt to understand the determinants of the informal economy by investigating the relationship between financial development and the size of the informal economy using an unbalanced panel data of 41 sub‐Saharan African (SSA) countries over the period 1991–2015. The paper applies different techniques such as ordinary least squares, fixed effects, system generalized method of moments, and quantile regression. The results show that financial development and its square are important determinants of the informal economy in SSA. Across a number of specifications, we find that financial development reduces the size of the informal economy and that there is a U‐shaped relationship between financial development and the informal economy.