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The size of informal economy in Pakistan

Author

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

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.

Suggested Citation

  • Arby, Muhammad Farooq & Malik, Muhammad Jahanzeb & Hanif, Muhammad Nadim, 2010. "The size of informal economy in Pakistan," MPRA Paper 22617, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:22617
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    References listed on IDEAS

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    1. Kemal, M. Ali, 2007. "Fresh Assessment of the Underground Economy and Tax Evasion in Pakistan: Causes, Consequences, and Linkages with the Formal Economy," MPRA Paper 2226, University Library of Munich, Germany.
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    5. Arby, Muhammad Farooq, 2008. "Some Issues in the National Income Accounts of Pakistan (Rebasing, Quarterly and Provincial Accounts and Growth Accounting)," MPRA Paper 32048, University Library of Munich, Germany.
    6. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
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    11. Edgar L. Feige, 2004. "How Big IS the Irregular Economy?," Macroeconomics 0404005, EconWPA.
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    Cited by:

    1. repec:hur:ijarbs:v:7:y:2017:i:8:p:388-397 is not listed on IDEAS
    2. Ahmed, Shahzad & Ahmed, Waqas & Khan, Sajawal & Pasha, Farooq & Rehman, Muhammad, 2012. "Pakistan Economy DSGE Model with Informality," MPRA Paper 53135, University Library of Munich, Germany.
    3. 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.
    4. 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), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 6(3), pages 97-121, December.
    5. 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.
    6. repec:pje:journl:article27sumv is not listed on IDEAS
    7. repec:eee:quaeco:v:65:y:2017:i:c:p:61-70 is not listed on IDEAS
    8. 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.
    9. Hanif, Muhammad Nadim, 2014. "Monetary Policy Experience of Pakistan," MPRA Paper 60855, University Library of Munich, Germany.
    10. Maira CaƱo-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.
    11. Misbah Kiani & Adeel Ahmed & Khalid Zaman, 2015. "Combining qualitative and quantitative approaches for measuring underground economy of Pakistan," Quality & Quantity: International Journal of Methodology, Springer, vol. 49(1), pages 295-317, January.
    12. 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.

    More about this item

    Keywords

    Informal Economy; ARDL; MIMIC;

    JEL classification:

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

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