Brambila Macias, Jose (2008): Modeling the Informal Economy in Mexico. A Structural Equation Approach.
Download (305Kb) | Preview
This paper uses annual data for the period 1970-2006 in order to estimate and investigate the evolution of the Mexican informal economy. In order to do so, we model the informal economy as a latent variable and try to explain it through relationships between possible cause and indicator variables using structural equation modeling (SEM). Our results indicate that the Mexican informal sector at the beginning of the 1970’s initially accounted for 40 percent of GDP while slightly decreasing to stabilize around 30percent of GDP in the late 1980’s until our days. The model uses tax burden, salary levels, inflation, unemployment and excessive regulation as potential incentives or deterrents for the informal economy. The results confirm in particular the importance of salaries and excessive regulation as causes of the informal economy in Mexico and confirm a positive relation between informality and GDP.
|Item Type:||MPRA Paper|
|Original Title:||Modeling the Informal Economy in Mexico. A Structural Equation Approach|
|Keywords:||Informal Economy; Economic Growth; Structural Equations|
|Subjects:||C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models; Multiple Variables > C39 - Other
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E26 - Informal Economy; Underground Economy
|Depositing User:||Jose Brambila-Macias|
|Date Deposited:||28. Apr 2008 14:26|
|Last Modified:||11. Feb 2013 23:09|
Aigner, D. J., F. Schneider, and G. Damayanti (1988), “Me and my shadow: estimating the size of the U.S. hidden economy from time series data”, in W. A. Barnett et al. (eds.), Dynamic Econometric Modelling: Proceedings of the Third International Symposium in Economic Theory and Econometrics. Cambridge University Press, Cambridge, pp. 297- 334.
Alañón, A., and M. Gómez-Antonio (2005), “Estimating the Size of the Shadow Economy in Spain: A Structural Model with Latent Variables", Applied Economics, 37(9), pp. 1011-1025.
Bajada, C., and F. Schneider (2005), “The Shadow Economies of the Asia-Pacific”, Pacific Economic Review, 10(3), pp. 379-401.
Bollen, K. A. (1989), “Structural equations with latent variables”. John Wiley & Sons, New York.
Brambila-Macias, J. (2008) “The Dynamics of Parallel Economies. Measuring the Informal Sector in Mexico”, MPRA Paper No. 8400.
Breusch, T. (2005), “Estimating the Underground Economy using the MIMIC Models”, The Australian National University.
Dell'Anno, R. (2003), "Estimating the Shadow Economy in Italy: a Structural Equation Approach," Department of Economics, Working Papers 2003-7, Department of Economics, University of Aarhus, Denmark.
Dell’Anno, R., and F. Schneider (2003), “The Shadow Economy of Italy and other OECD Countries: What do we know?,” Journal of Public Finance and Public Choice, XXI(2-3), pp. 97-120.
Dell’Anno, R., and F. Schneider ( 2006), “Estimating the underground economy by using MIMIC models: A Response to T. Breusch’s critique” Economics working papers 2006-07, Department of Economics, Johannes Kepler University Linz, Austria.
Dell’Anno,, R., and O.H. Solomon (2007), “Shadow economy and unemployment rate in USA: is there a structural relationship? An empirical analysis”, Applied Economics, pp. 1-19.
Dell’Anno, R., M. Gomez-Antonio, and A. Pardo. (2007), “The Shadow economy in three Mediterranean countries: France, Spain and Greece. A MIMIC approach” Empirical Economics, 33, pp. 51-84.
Diamantopoulos, A. and J. Siguaw (2000), “Introducing LISREL”, SAGE Publications, London, UK.
Feige, E. (1979), “How big is the irregular economy?”, Challenge, 22, pp. 5-13.
Frey, B., and H. Weck-Hanneman (1984), “The Hidden Economy as an Unobservable variable”. European Economic Review, 26(1), pp. 33-53.
Garcia-Verdu, R. (2007), “The Informal Sector: What Is It, Why Do We Care, and How Do We Measure It?”, mimeo.
Giles, D., and L. Tedds (2002), “Taxes and The Canadian Underground Economy”, Canadian Tax Foundation Toronto, Paper n. 106, Canada.
Goldberger, A. S. (1972), “Structural Equation Methods in the Social Sciences”, Econometrica, 40, pp. 979-1001.
Hametner, B., and F. Schneider (2007), “The shadow economy in Colombia: size and effects on economic growth” Working Paper 2007-03, Department of Economics, Johannes Kepler University Linz, Austria.
Hart, K. (1973), "Informal Income Opportunities and Urban Employment in Ghana." Journal of Modern African Studies, 11, pp. 61-89.
Hart, K. (1990), "The Idea of Economy: Six Modern Dissenters" in: R. Friedland and A. F. Robertson (eds.), Beyond the Marketplace, Rethinking Economy and Society, New York, Aldine de Gruyter, pp. 137-60
IADB (2006), “The Informal Sector in Jamaica”, Economic and Sector Study Series RE3-06-010, Washington DC.
ILO (1999), “Panorama Laboral 99, Informa 6”, International Labour Organisation, Lima.
Johnson, S., D. Kaufmann, and A. Shleifer (1997), “The Unofficial Economy in Transition”, Brooking Papers of Economic Activity, 0:2, pp. 159-221
Jöreskog, K., and A.S. Goldberger (1975),“Estimation of a model with multiple indicators and multiple causes of a single latent variable”, Journal of the American Statistical Association, 70, pp. 631-639.
Kaufmann, D., and A. Kaliberda (1996), “Integrating the unofficial economy into the dynamics of the post-socialist economies: A framework of analysis and evidence”, in B. Kaminski (ed.), Economic transition in Russia and the new states of Eurasia. Armont, New York: M.E. Sharpe, Inc.
Loayza, N. (1997), “The economics of the informal sector: a simple model and some empirical evidence from Latin America”, World Bank Policy Research Working Paper, WPS 1727, The World Bank, Washington, DC.
OECD (2002), “Measuring the Non-Observed Economy - A Handbook”, Statistics Directorate, Paris, France.
Roubaud, F.(1995), “La Economia Informal en Mexico. De la esfera domestica a la dinamica macroeconomica”, Fondo de Cultura Economica, Mexico.
Schneider, F. and D. Enste (2000), “Shadow economies: size, causes and consequences”, Journal of Economic Literature, American Economic Association, 38, pp. 77-114.
Schneider, F. (2002), “Size and measurement of the informal economy in 110 countries around the world”, Rapid Response Unit, The World Bank, Washington, DC.
Stevens, J. (1996),“Applied multivariate statistics for the social sciences”. Lawrence Erlbaum Associates, Inc., USA.
Tanzi, V. (1983), “The underground economy in the United States: Annual estimates, 1930-1980”, IMF Staff Papers, 33, International Monetary Fund, pp. 283-305.
Vuletin, G. (2006), “What is the size of the Pie? Measuring the Informal Economy in Latin American and the Caribbean.” Forthcoming IMF Working Paper, International Monetary Fund, Washington, DC.