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Informal we stand? The role of social progress around the world

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  • Medda, Tiziana
  • Palmisano, Flaviana
  • Sacchi, Agnese

Abstract

Social progress has increased around the world. Can it be considered a strategic tool to shrink the informal sector? Using data for 156 countries over the last 30 years, we find that social progress - measured though the Human Development Index (HDI) - exerts a strong negative impact on informal economy (IE). However, this impact diminishes for higher levels of social progress, depicting a non-linear relationship, and it is mainly driven by the income and health components of HDI, whereas the education component does not play a significant role. Among the mechanisms possibly affecting the investigated relationship, we focus on political corruption and the spread of internet as opposite factors at work. While the ‘virtuous’ effect of social progress on IE holds even in presence of high political corruption, it vanishes when the internet diffusion increases.

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  • Medda, Tiziana & Palmisano, Flaviana & Sacchi, Agnese, 2022. "Informal we stand? The role of social progress around the world," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 660-675.
    • Handle: RePEc:eee:reveco:v:78:y:2022:i:c:p:660-675
    DOI: 10.1016/j.iref.2021.12.009
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    More about this item

    Keywords

    Informal economy; Social progress; Human development index; Political corruption; Internet;
    All these keywords.

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development

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