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The informal economy and economic volatility

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  • Terral Mapp
  • Winston Moore

Abstract

The informal economy has traditionally played an important role in most Caribbean economies. Indeed, small-family-owned plots supplied a considerable domestic demand for agricultural commodities. Most Caribbean economies are now primarily service-oriented; however, the informal sector still plays a major role in most of their economies. There are disadvantages to an over reliance on the informal sector: low-tax yields and a focus mainly on the domestic market. This paper argues, nonetheless, that the informal sector is a key mechanism for insulating households from the effects of large negative economic shocks. The study therefore investigates the effects of the size of the informal economy on economic volatility in the Caribbean with emphasis on consumption volatility. The results are not meant to argue for policies to support the growth and penetration of the informal sector, but instead for policies aimed at supporting entrepreneurship within the region.

Suggested Citation

  • Terral Mapp & Winston Moore, 2015. "The informal economy and economic volatility," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 8(1-2), pages 185-200, July.
    • Handle: RePEc:taf:macfem:v:8:y:2015:i:1-2:p:185-200
    DOI: 10.1080/17520843.2014.969291
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    References listed on IDEAS

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    Cited by:

    1. Afonso, Oscar & Neves, Pedro Cunha & Pinto, Tiago, 2020. "The non-observed economy and economic growth: A meta-analysis," Economic Systems, Elsevier, vol. 44(1).
    2. Jeffrey A Edwards & Alfredo A. Romero, 2020. "Volatility, island nations and small states," Economics and Business Letters, Oviedo University Press, vol. 9(3), pages 248-254.
    3. Andre Yone Haughton & Emma M. Iglesias, 2017. "Exchange Rate Movements, Stock Prices and Volatility in the Caribbean and Latin America," International Journal of Economics and Financial Issues, Econjournals, vol. 7(2), pages 437-447.
    4. Folorunsho M. Ajide, 2021. "Shadow economy in Africa: how relevant is financial inclusion?," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 29(3), pages 297-316, April.
    5. Bennihi, Aymen Salah & Bouriche, Lahcene & Schneider, Friedrich, 2021. "The informal economy in Algeria: New insights using the MIMIC approach and the interaction with the formal economy," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 470-491.

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