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The size of informal economy in Pakistan

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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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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    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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    Cited by:

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    2. Sulehri, Fiaz Ahmad & Ahmed, Usman & Alim, Wajid, 2021. "Black Economy, Financial Inclusion, Financial Liberalization Nexus: A Panel Analysis of Developing Countries," MPRA Paper 111129, University Library of Munich, Germany.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. Ayaz KHAN* & Samina KHALIL**, 2017. "THE REAL SIZE OF UNDERGROUND ECONOMY: A Case of Pakistan," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 27(1), pages 89-100.
    8. Khurrum S. Mughal & Friedrich G. Schneider, 2020. "How Informal Sector Affects the Formal Economy in Pakistan? A Lesson for Developing Countries," South Asian Journal of Macroeconomics and Public Finance, , vol. 9(1), pages 7-21, June.
    9. Omar Ashraf & M. Ali Kemal, 2019. "Exploring the Determinants of Underground Economy of Pakistan," PIDE-Working Papers 2019:163, Pakistan Institute of Development Economics.
    10. 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.
    11. 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.
    12. Hanif, Muhammad Nadim, 2014. "Monetary Policy Experience of Pakistan," MPRA Paper 60855, University Library of Munich, Germany.
    13. 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.
    14. 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.
    15. 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.
    16. 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.
    17. 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.
    18. 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.

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    More about this item

    Keywords

    Informal Economy; 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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