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Informality and bank stability


  • Liu-Evans, Gareth
  • Mitra, Shalini


While financial development (FD) has been widely studied in the literature as a determinant of informal sector size, there has been no focus on the role of financial stability. We find that the stability of the banking sector has a significant and robust negative effect on informality across countries. Using a recently available testing methodology based on a heteroskedasticity-robust Lasso we also find strong support for Rule of Law as a key determinant of informal sector size, and some evidence for the effect of FD.

Suggested Citation

  • Liu-Evans, Gareth & Mitra, Shalini, 2019. "Informality and bank stability," Economics Letters, Elsevier, vol. 182(C), pages 122-125.
  • Handle: RePEc:eee:ecolet:v:182:y:2019:i:c:p:122-125
    DOI: 10.1016/j.econlet.2019.06.012

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    Cited by:

    1. 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.

    More about this item


    Informality; Bank stability; Financial development; Rigorous Lasso; Rule of Law;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G2 - Financial Economics - - Financial Institutions and Services
    • H1 - Public Economics - - Structure and Scope of Government
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue


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