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The impact of informality on economic growth in sub-Saharan Africa: The role of institutional quality

Author

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  • Stephen Adusei
  • Anthony Kofi Osei-Fosu
  • Frank Adusah-Poku

Abstract

The informal economy is often seen as a sector that hampers economic growth in many developing economies, of which sub-Saharan Africa is no exception. However, it is an important feature of sub-Saharan African economies which can accelerate economic growth, provided the sector is moderated by institutional quality, which is a knowledge gap. This study examines the moderating effect of quality of institutions in the informality-economic growth relationship. This paper uses a cross-country panel dataset for 43 sub-Saharan African economies over the years 2002 to 2018 and employs the two-step system generalised method of moments technique for the analysis. The results show that, in both the short and the long run, improvement in institutional quality is not only essential for economic progress but is also crucial in complementing informality to improve economic growth in sub-Saharan Africa. Additionally, the results of the study suggest that capital per labour, human capital and trade significantly and positively affect economic growth in SSA, while inflation, government expenditure and financial depth are detrimental to economic growth in SSA.

Suggested Citation

  • Stephen Adusei & Anthony Kofi Osei-Fosu & Frank Adusah-Poku, 2026. "The impact of informality on economic growth in sub-Saharan Africa: The role of institutional quality," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 35(4), pages 918-952, May.
    • Handle: RePEc:taf:jitecd:v:35:y:2026:i:4:p:918-952
    DOI: 10.1080/09638199.2026.2663019
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