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Does informal economy impede economic growth? Evidence from an emerging economy

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  • Nguyen Vinh Khuong
  • Malik Shahzad Shabbir
  • Muhammad Safdar Sial
  • Thai Hong Thuy Khanh

Abstract

The objective of this study is to re-examine the impact of the informal economy on economic growth in Pakistan. This study first computed the informal economy through currency demand equation and then the adopted auto-regressor distributed lags (ARDL) technique for data analysis. The result indicates that 56% informal economy of gross domestic product (GDP) exists in Pakistan. The Wald F-test shows that the overall model is statistically significant because the value of this test (13.4) is more than the upper and lower bounds values. Whereas Engle-Granger causality test describes that the growth rate of real GDP causes the Granger to GDP at 5%. This study tries to solve these issues and give a new policy implication for policymakers to control the informal economy and make sure that this sector will convert into a recorded or reported form.

Suggested Citation

  • Nguyen Vinh Khuong & Malik Shahzad Shabbir & Muhammad Safdar Sial & Thai Hong Thuy Khanh, 2021. "Does informal economy impede economic growth? Evidence from an emerging economy," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 11(2), pages 103-122, April.
    • Handle: RePEc:taf:jsustf:v:11:y:2021:i:2:p:103-122
    DOI: 10.1080/20430795.2020.1711501
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    Cited by:

    1. Amogh Ghimire & Feiting Lin & Peifen Zhuang, 2021. "The Impacts of Agricultural Trade on Economic Growth and Environmental Pollution: Evidence from Bangladesh Using ARDL in the Presence of Structural Breaks," Sustainability, MDPI, vol. 13(15), pages 1-15, July.
    2. Ada Aliaj & Rovena Vangjel, 2023. "Financial Development and Its Impact on the Shadow Economy in Albania," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 12, May.
    3. Durdana Qaiser Gillani & Hassan Shakeel Shah & Hafiza Nadia Bashir, 2021. "Gender and Urban Informal Sector Employment: An Analysis from Southern Punjab, Pakistan," Journal of Economic Impact, Science Impact Publishers, vol. 3(3), pages 152-157.
    4. Ergin Akalpler, 2023. "Triggering economic growth to ensure financial stability: case study of Northern Cyprus," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-40, December.

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