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The Dynamics of Parallel Economies. Measuring the Informal Sector in México

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Author Info
José Brambila Macias () (Department of Economics, University Of Venice Cà Foscari)
Guido Cazzavillan (Department of Economics, University Of Venice Cà Foscari)

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Abstract

The existence of parallel economies that operate in the shadows of informality within most Latin American countries is widely recognized by the economic literature. However, its composition, size and effects on economic growth are still open questions. In this paper, we estimate the size and the evolution of the Mexican informal economy in the last three decades using a vector error correction model. In addition to the standard explanatory variables traditionally used in the currency demand approach, we include remittances given their relevance in the Mexican economic system. The results indicate that informality prior to the late 1980’s accounted for at least two thirds of GDP, while stabilizing around one third of GDP in the last decade. Furthermore, our estimates provide evidence of a positive long run relationship between informality and economic growth.

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Publisher Info
Paper provided by University of Venice "Ca' Foscari", Department of Economics in its series Working Papers with number 2008_42.

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Length: 25
Date of creation: 2008
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Handle: RePEc:ven:wpaper:2008_42

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Related research
Keywords: Informal Sector; currency demand; VEC; Remittances;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
F24 - International Economics - - International Factor Movements and International Business - - - Remittances
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Peter S. Spiro, 1996. "Monetary Estimates of the Underground Economy: A Critical Evaluation," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 171-75, April.
  2. Fethi Ogunc & Gokhan Yilmaz, 2000. "Estimating The Underground Economy In Turkey," Discussion Papers 0004, Research and Monetary Policy Department, Central Bank of the Republic of Turkey. [Downloadable!]
  3. Guillermo Javier Vuletin, 2008. "Measuring the Informal Economy in Latin America and the Caribbean," IMF Working Papers 08/102, International Monetary Fund. [Downloadable!]
  4. Edgar L. Feige, 2004. "How Big IS the Irregular Economy?," Macroeconomics 0404005, EconWPA. [Downloadable!]
  5. Friedrich Schneider & Dominik H. Enste, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March. [Downloadable!] (restricted)
  6. Klovland, Jan Tore, 1984. " Tax Evasion and the Demand for Currency in Norway and Sweden. Is There a Hidden Relationship?," Scandinavian Journal of Economics, Blackwell Publishing, vol. 86(4), pages 423-39.
  7. Maurizio Bovi & Roberto Dell'Anno, 2007. "The Changing Nature of the OECD Shadow Economy," ISAE Working Papers 81, ISAE - Institute for Studies and Economic Analyses - (Rome, ITALY). [Downloadable!]
  8. Loayza, Norman A., 1997. "The economics of the informal sector : a simple model and some empirical evidence from Latin America," Policy Research Working Paper Series 1727, The World Bank. [Downloadable!]
  9. Chaudhuri, Kausik & Schneider, Friedrich & Chattopadhyay, Sumana, 2006. "The size and development of the shadow economy: An empirical investigation from states of India," Journal of Development Economics, Elsevier, vol. 80(2), pages 428-443, August. [Downloadable!] (restricted)
  10. Shima, Isilda, 2004. "The shadow economy in Norway: Demand for currency approach," Memorandum 10/2004, Oslo University, Department of Economics. [Downloadable!]
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  11. Dr. Peter Kenning & Hilke Plassmann, 2004. "NeuroEconomics," Experimental 0412005, EconWPA. [Downloadable!]
  12. 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. [Downloadable!]
  13. Andrew Swiston & Ales Bulir, 2006. "What Explains Private Saving in Mexico?," IMF Working Papers 06/191, International Monetary Fund. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Brambila Macias, Jose, 2008. "Modeling the Informal Economy in Mexico. A Structural Equation Approach," MPRA Paper 8504, University Library of Munich, Germany. [Downloadable!]
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