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The Size of Informal Economy in Pakistan

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  • Muhammad Farooq Arby
  • Muhammad Jahanzeb Malik
  • Muhammad Nadim Hanif

Abstract

This paper estimates the size of informal economy in Pakistan by using monetary approach with some modifications, electricity consumption approach and MIMIC model. Under monetary approach, we take care of the issue of the stationarity of variables and use autoregressive distributed lag (ARDL) model instead of simple OLS and add education as an additional factor affecting the size of informal economy along with some other technical improvements in the standard monetary models. The electricity consumption approach and MIMIC models are used for the first time in case of Pakistan. The results show that the informal economy in Pakistan has been about 30 percent of the total economy which declined considerably in 2000s. Currently, about 20 percent of the economic transactions are taking place in the informal sector. Key Words: Informal Economy, ARDL, MIMIC Acknowledgment We appreciate the comments and feedback given by Ali Choudhary, Moinuddin, Amin Lodhi and participants of a seminar in which this paper was presented.

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  • Muhammad Farooq Arby & Muhammad Jahanzeb Malik & Muhammad Nadim Hanif, 2010. "The Size of Informal Economy in Pakistan," Working Papers id:2493, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:2493
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    1. Democracy and Development in Pakistan: Where are we headed?
      by Jesse Neugarten in Blogal Prosperity on 2014-06-24 23:52:38

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    2. Abdel-Latif, Hany & Ouattara, Bazoumana & Murphy, Phil, 2017. "Catching the mirage: The shadow impact of financial crises," The Quarterly Review of Economics and Finance, Elsevier, vol. 65(C), pages 61-70.
    3. Hanif, Muhammad Nadim, 2014. "Monetary Policy Experience of Pakistan," MPRA Paper 60855, University Library of Munich, Germany.
    4. Asif Razzaq & Rabia Nazir & Fareeha Adil, 2020. "Dynamic Relationship among Tax Evasion, Control over Corruption and Political Accountability: A Case Study of Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 10(5), pages 256-261.
    5. Waqas Ahmed & Farooq Pasha & Sajawal Khan & Muhammad Rehman, 2012. "Pakistan Economy DSGE Model with Informality," SBP Working Paper Series 47, State Bank of Pakistan, Research Department.
    6. M. Ali Choudhary & Saima Naeem & Abdul Faheem & Nadim Haneef & Farooq Pasha, 2011. "Formal Sector Price Discoveries: Results from a Developing Country," School of Economics Discussion Papers 1011, School of Economics, University of Surrey.
    7. Ahmed Gulzar & Novaira Junaid & Adnan Haider, 2010. "What is Hidden in the Hidden Economy of Pakistan? Size, Causes, Issues, and Implications," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 49(4), pages 665-704.
    8. Muhammad Saqib & Sajjad Ahmad & Naila Nazir, 2017. "Informal Saving Organizations in Pakistan," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 7(8), pages 388-397, August.
    9. Younis, Fizza & Chaudhary, Aslam & Akbar, Muhammad, 2015. "Pattern of Development and Sustainable Economic Growth In Pakistan: A Descriptive Analysis," MPRA Paper 71473, University Library of Munich, Germany.
    10. Betty Annan & William Bekoe & Edward Nketiah-Amponsah, 2013. "Determinants of Tax Evasion in Ghana: 1970-2010," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 6(3), pages 97-121, December.
    11. Rafat MAHMOOD & Eatzaz AHMAD, 2015. "Measurement Of Import Smuggling In Pakistan," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 25(2), pages 135-159.
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    14. Omar Ashraf & M. Ali Kemal, 2019. "Exploring the Determinants of Underground Economy of Pakistan," PIDE-Working Papers 2019:163, Pakistan Institute of Development Economics.
    15. Fiaz Ahmad Sulehri & Usman Ahmed & Wajid Alim, 2021. "Black Economy, Financial Inclusion, Financial Liberalization Nexus: A Panel Analysis Of Developing Countries," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(3), pages 65-77, September.
    16. Maira Caño-Guiral, 2015. "The non-observed economy in Uruguay. A look at the first decade of the 21st century," Documentos de trabajo 2015004, Banco Central del Uruguay.
    17. Anzhelika Viktorovna Karpushkina & Irina Valentinovna Danilova & Svetlana Vladimirovna Voronina & Irina Petrovna Savelieva, 2021. "Assessing the Impact of Employment in the Informal Sector of the Economy on Labor Market Development," Sustainability, MDPI, vol. 13(15), pages 1-15, July.
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    More about this item

    Keywords

    informal economy; Pakistan; South Asia; ARDL; MIMIC;
    All these keywords.

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy

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