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Informal Sector and Institutions

Ozer, Yusuf (2022): Informal Sector and Institutions.

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In this paper, I investigate the relationship between informal sector size and various institutional quality variables: government stability, external conflict, internal conflict, corruption control, military influence over politics, religious tensions, ethnic tensions, law-and-order, democratic quality, and bureaucratic accountability. To this end, I use annual cross-country panel data covering 130 countries from 1990 to 2018. Having conducted a correlation analysis, I find that the size of informal economy and institutional quality indicators are inversely linked, and the most important institutional quality determinants are law-and-order (-0.53), bureaucratic quality (-0.51), military in politics (-0.45), corruption control (-0.42), and internal conflict (-0.35).

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