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

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  • José Brambila Macias

    ()
    (Department of Economics, University Of Venice Cà Foscari)

  • Guido Cazzavillan

    (Department of Economics, University Of Venice Cà Foscari)

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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Bibliographic Info

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

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

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

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  1. Helberger, Christof & Knepel, Helmut, 1988. "How big is the shadow economy? : A re-analysis of the unobserved-variable approach of B.S. Frey and H. Weck-Hannemann," European Economic Review, Elsevier, Elsevier, vol. 32(4), pages 965-976, April.
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Cited by:
  1. Mohammad Joarder & Uddin Saleh, 2010. "Estimating the economic model of Hundi using micro-level data," Asia Europe Journal, Springer, Springer, vol. 8(1), pages 61-75, June.
  2. Marjit, Sugata & Kar, Saibal & Chaudhuri, Sarbajit, 2011. "Recession in the skilled sector and implications for informal wage," Research in Economics, Elsevier, Elsevier, vol. 65(3), pages 158-163, September.
  3. José Brambila Macias & Guido Cazzavillan, 2008. "Modelling the Informal Economy in Mexico. A Structural Equation Approach," Working Papers, Department of Economics, University of Venice "Ca' Foscari" 2008_41, Department of Economics, University of Venice "Ca' Foscari".
  4. Hatipoglu, Ozan & Ozbek, Gulenay, 2008. "On the Political Economy of the Informal Sector and Income Redistribution," MPRA Paper 7857, University Library of Munich, Germany.
  5. Alexandru Adriana Anamaria & Dobre Ion & Ghinararu Catalin, 2009. "Estimating The Size Of Romanian Shadow Economy Using The Currency Demand Approach," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, University of Oradea, Faculty of Economics, vol. 2(1), pages 623-631, May.

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