The role of economic prosperity on informality in Africa: evidence of corruption thresholds from PSTR

Njoya, Loudi and Ngouhouo, Ibrahim and Asongu, Simplice and Schneider, Friedrich (2022): The role of economic prosperity on informality in Africa: evidence of corruption thresholds from PSTR.

Abstract

This paper is interested in explaining the causes of the simultaneous evolution between economic growth and informality. Using a large annual panel of African countries with a time series of 25 years, ours results show that when the corruption rate is above (below) a threshold of 1.3577, economic growth reduces (increases) informal economic sector. The corruption proxy is measured as a decreasing function of corruption such that higher levels of the corruption proxy translate lower levels of corruption. It is therefore desirable for policymakers to improve the transparency of interactions between firms, public and private agents to fight corruption, in view of decreasing the informal economic sector through economic growth.

• Item Type: MPRA Paper
• Language: English
• Keywords: Informal sector, Growth, Corruption, African countries
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D73 - Bureaucracy ; Administrative Processes in Public Organizations ; Corruption; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F47 - Forecasting and Simulation: Models and Applications; J - Labor and Demographic Economics > J4 - Particular Labor Markets > J46 - Informal Labor Markets; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O10 - General; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence

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