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

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  • Njangang, Henri

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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  • Njangang, Henri, 2018. "Does financial development reduce the size of the informal economy in Sub-Saharan African countries?," MPRA Paper 89851, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:89851
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    2. Hermann Ndoya hegueu & Aristophane Djeufack dongmo, 2021. "Urbanization, Governance and Informal Economy: an African Tale," Economics Bulletin, AccessEcon, vol. 41(3), pages 1525-1540.
    3. Ndoya, Hermann & Okere, Donald & Belomo, Marie laure & Atangana, Melissa, 2023. "Does ICTs decrease the spread of informal economy in Africa?," Telecommunications Policy, Elsevier, vol. 47(2).
    4. Imamoglu, Hatice, 2021. "The role of financial development on the underground economy in regards to Europe’s 2020 strategy," Economic Systems, Elsevier, vol. 45(2).
    5. Ada Aliaj & Rovena Vangjel, 2023. "Financial Development and Its Impact on the Shadow Economy in Albania," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 12, May.
    6. Selçuk Akçay & Emre Karabulutoğlu, 2021. "Do remittances moderate financial development–informality nexus in North Africa?," African Development Review, African Development Bank, vol. 33(1), pages 166-179, March.
    7. Kpognon, Koffi D., 2022. "Fostering domestic resources mobilization in sub-Saharan Africa: Linking natural resources and ICT infrastructure to the size of informal economy," Resources Policy, Elsevier, vol. 77(C).
    8. Melain Modeste Senou & Julius Manda, 2022. "Access to finance and rural youth entrepreneurship in Benin: Is there a gender gap?," African Development Review, African Development Bank, vol. 34(1), pages 29-41, March.
    9. Yaya Koloma, 2021. "COVID‐19, financing and sales decline of informal sector MSMEs in Senegal," African Development Review, African Development Bank, vol. 33(S1), pages 207-220, April.
    10. Emmanuel Umoru Haruna & Usman Alhassan, 2022. "Does digitalization limit the proliferation of the shadow economy in African countries? An in‐depth panel analysis," African Development Review, African Development Bank, vol. 34(S1), pages 34-62, July.
    11. Khalil Mhadhbi & Chokri Terzi, 2022. "Shadow economy threshold effect in the relationship finance–growth in Tunisia: A nonlinear autoregressive distributed lag approach," Journal of International Development, John Wiley & Sons, Ltd., vol. 34(3), pages 636-651, April.
    12. Rahman, Sami Ur & Faisal, Faisal & Ali, Adnan & Sulimany, Hamid Ghazi H & Bazhair, Ayman Hassan, 2023. "Do financial technology and financial development lessen shadow economy? Evidence from BRICST economies using heterogenous bootstrap panel causality," The Quarterly Review of Economics and Finance, Elsevier, vol. 90(C), pages 201-210.
    13. Folorunsho M. Ajide, 2021. "Shadow economy in Africa: how relevant is financial inclusion?," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 29(3), pages 297-316, April.
    14. Kpognon, Koffi D., 2022. "Effect of Natural Resources on the Size of Informal Economy in sub-Saharan Africa: An Empirical Investigation," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 1-14.

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    More about this item

    Keywords

    Financial development; the informal economy; panel data; SSA;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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