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Does financial development reduce the size of the informal economy in Sub-Saharan African countries?

Njangang, Henri and Ndeffo Nembot, Luc and Ngameni, Joseph Pasky (2018): Does financial development reduce the size of the informal economy in Sub-Saharan African countries? Published in: African Developoment Review , Vol. 32, No. 3 (September 2020): pp. 375-391.

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Abstract

This paper contributes to the understanding of the other neglected effects of financial development by investigating the relationship between financial development and the size of the informal economy using an unbalanced panel data of 41 Sub Saharan African countries over the period 1991-2015. Empirical evidence is based on Ordinary Least Squared, Fixed effects and system Generalized Method of moment. The results show that financial development measured by broad money and domestic credit to private sector have a negative and statistically significant effect on the informal economy. This clearly suggests that financial development reduces the size of the informal economy.

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