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The size of informal economy in Pakistan

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  • Arby, Muhammad Farooq
  • Malik, Muhammad Jahanzeb
  • Hanif, Muhammad Nadim

Abstract

This paper estimates the size of informal economy in Pakistan by using monetary approach with some modifications, electricity consumption approach and MIMIC model. Under monetary approach, we take care of the issue of the stationarity of variables and use autoregressive distributed lag (ARDL) model instead of simple OLS and add education as an additional factor affecting the size of informal economy along with some other technical improvements in the standard monetary models. The electricity consumption approach and MIMIC models are used for the first time in case of Pakistan. The results show that the informal economy in Pakistan has been about 30 percent of the total economy which declined considerably in 2000s. Currently, about 20 percent of the economic transactions are taking place in the informal sector.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 22617.

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Date of creation: 07 May 2010
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Handle: RePEc:pra:mprapa:22617

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Keywords: Informal Economy; ARDL; MIMIC;

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  1. Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo Group Munich.
  2. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
  3. Ahumada, Hildegart & Alvaredo, Facundo & Canavese, Alfredo, 2008. "The monetary method to measure the shadow economy: The forgotten problem of the initial conditions," Economics Letters, Elsevier, vol. 101(2), pages 97-99, November.
  4. Guillermo E. Perry & William F. Maloney & Omar S. Arias & Pablo Fajnzylber & Andrew D. Mason & Jaime Saavedra-Chanduvi, 2007. "Informality : Exit and Exclusion," World Bank Publications, The World Bank, number 6730, January.
  5. Mehnaz Ahmed & Qazi Masood Ahmed, 1995. "Estimation of the Black Economy of Pakistan through the Monetary Approach," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 34(4), pages 791-807.
  6. Kemal, M. Ali, 2007. "Fresh Assessment of the Underground Economy and Tax Evasion in Pakistan: Causes, Consequences, and Linkages with the Formal Economy," MPRA Paper 2226, University Library of Munich, Germany.
  7. Arby, Muhammad Farooq, 2008. "Some Issues in the National Income Accounts of Pakistan (Rebasing, Quarterly and Provincial Accounts and Growth Accounting)," MPRA Paper 32048, University Library of Munich, Germany.
  8. Kaufmann, Daniel & Kaliberda, Aleksander, 1996. "Integrating the unofficial economy into the dynamics of post-socialist economies : a framework of analysis and evidence," Policy Research Working Paper Series 1691, The World Bank.
  9. Edgar L. Feige, 2004. "How Big IS the Irregular Economy?," Macroeconomics 0404005, EconWPA.
  10. Angel Alanon & M. Gomez-Antonio, 2005. "Estimating the size of the shadow economy in Spain: a structural model with latent variables," Applied Economics, Taylor & Francis Journals, vol. 37(9), pages 1011-1025.
  11. Hildegart Ahumada & Facundo Alvaredo & Alfredo Canavese, 2007. "The Monetary Method And The Size Of The Shadow Economy: A Critical Assessment," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 53(2), pages 363-371, 06.
  12. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
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Cited by:
  1. Ahmed Gulzar & Novaira Junaid & Adnan Haider, 2010. "What is Hidden in the Hidden Economy of Pakistan? Size, Causes, Issues, and Implications," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 49(4), pages 665–704.
  2. Ahmed, Shahzad & Ahmed, Waqas & Khan, Sajawal & Pasha, Farooq & Rehman, Muhammad, 2012. "Pakistan Economy DSGE Model with Informality," MPRA Paper 53135, University Library of Munich, Germany.
  3. M. Ali Choudhary & Saima Naeem & Abdul Faheem & Nadim Haneef & Farooq Pasha, 2011. "Formal Sector Price Discoveries: Results from a Developing Country," School of Economics Discussion Papers 1011, School of Economics, University of Surrey.

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