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The Dynamics of Parallel Economies. Measuring the Informal Sector in México

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  • Brambila Macias, Jose

Abstract

The existence of parallel economies that operate in the shadows of informality within most Latin American countries is widely recognized by the economic literature. However, its composition, size and effects on economic growth are still open questions. In this paper, we estimate the size and the evolution of the Mexican informal economy in the last three decades using a vector error correction model. In addition to the standard explanatory variables traditionally used in the currency demand approach, we include remittances given their relevance in the Mexican economic system. The results indicate that informality prior to the late 1980’s accounted for at least two thirds of GDP, while stabilizing around one third of GDP in the last decade. Furthermore, our estimates provide evidence of a positive long run relationship between informality and economic growth.

Suggested Citation

  • Brambila Macias, Jose, 2008. "The Dynamics of Parallel Economies. Measuring the Informal Sector in México," MPRA Paper 8400, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:8400
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    References listed on IDEAS

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    1. Adrián Guisarri, 1987. "La Demanda de Circulante y la Informalidad en la Argentina 1930-1983," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 24(72), pages 197-224.
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    7. Helberger, Christof & Knepel, Helmut, 1988. "How big is the shadow economy? : A re-analysis of the unobserved-variable approach of B.S. Frey and H. Weck-Hannemann," European Economic Review, Elsevier, vol. 32(4), pages 965-976, April.
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    11. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164.
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    Cited by:

    1. José Brambila Macias & Guido Cazzavillan, 2010. "Modeling the informal economy in Mexico:a structural equation approach," Journal of Developing Areas, Tennessee State University, College of Business, vol. 44(1), pages 345-365, September.
    2. Ozan Hatipoglu & Gulenay Ozbek, 2011. "On the political economy of the informal sector and income redistribution," European Journal of Law and Economics, Springer, vol. 32(1), pages 69-87, August.
    3. Marjit, Sugata & Kar, Saibal & Chaudhuri, Sarbajit, 2011. "Recession in the skilled sector and implications for informal wage," Research in Economics, Elsevier, vol. 65(3), pages 158-163, September.
    4. González-Fernández, Marcos & González-Velasco, Carmen, 2015. "Analysis of the shadow economy in the Spanish regions," Journal of Policy Modeling, Elsevier, vol. 37(6), pages 1049-1064.
    5. Mai Hassan & Friedrich Schneider, 2016. "Modelling the Egyptian Shadow Economy: A Currency Demand and A MIMIC Model Approach," CESifo Working Paper Series 5727, CESifo Group Munich.
    6. Alexandru Adriana Anamaria & Dobre Ion & Ghinararu Catalin, 2009. "Estimating The Size Of Romanian Shadow Economy Using The Currency Demand Approach," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 2(1), pages 623-631, May.
    7. Quintano, Claudio & Mazzocchi, Paolo, 2013. "The shadow economy beyond European public governance," Economic Systems, Elsevier, vol. 37(4), pages 650-670.
    8. repec:eee:quaeco:v:65:y:2017:i:c:p:61-70 is not listed on IDEAS
    9. Awadh Ahmed Mohammed Gamal & Jauhari B.Dahalan, 2015. "Estimating the Size of the Underground Economy in Saudi: Evidence from Gregory-Hansen Cointegration Based Currency Demand Approach," Abstract of Economic, Finance and Management Outlook, Conscientia Beam, vol. 3, pages 1-6.
    10. Mohammad Joarder & Uddin Saleh, 2010. "Estimating the economic model of Hundi using micro-level data," Asia Europe Journal, Springer, vol. 8(1), pages 61-75, June.
    11. Santos-Pérez, Rubén, 2016. "Estimación de la economía informal para México mediante un método monetario, 1970-2012," eseconomía, Escuela Superior de Economía, Instituto Politécnico Nacional, vol. 11(45), pages 71-103, Segundo s.

    More about this item

    Keywords

    Informal Sector; currency demand; VEC; Remittances;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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