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Effect of Natural Resources on the Size of Informal Economy in sub-Saharan Africa: An Empirical Investigation

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  • Kpognon, Koffi D.

Abstract

Despite the extensive literature on the resource curse, little is known about the empirical relationship between natural resource abundance and the size of the informal economy. Theoretical predictions suggest that natural resource abundance contributes to the growth of the informal economy because the investments and expenditures associated with natural resource revenues limit opportunities in the formal sector, thereby channeling more labor and firms into the informal sector. This theory is empirically tested using data from 44 sub-Saharan Africa countries over the period 1991-2015. The main results reveal a positive and significant relationship that natural resource abundance favors the growth of the informal sector in SSA. These results are robust to several tests. Furthermore, the positive relationship between natural resource abundance and the size of the informal economy becomes negative when good and strong institutions are in place.

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  • 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.
    • Handle: RePEc:eee:streco:v:63:y:2022:i:c:p:1-14
    DOI: 10.1016/j.strueco.2022.08.005
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    More about this item

    Keywords

    Natural Resources; Informal Economy; Institutions; sub-Saharan Africa;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • 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
    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General

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