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Does financial development reduce the size of the informal economy in Sub-Saharan African countries?

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  • Njangang, Henri

Abstract

This paper contributes to the understanding of the other neglected effects of financial development by investigating the relationship between financial development and the size of the informal economy using an unbalanced panel data of 41 Sub Saharan African countries over the period 1991-2015. Empirical evidence is based on Ordinary Least Squared, Fixed effects and system Generalized Method of moment. The results show that financial development measured by broad money and domestic credit to private sector have a negative and statistically significant effect on the informal economy. This clearly suggests that financial development reduces the size of the informal economy.

Suggested Citation

  • Njangang, Henri, 2018. "Does financial development reduce the size of the informal economy in Sub-Saharan African countries?," MPRA Paper 89851, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:89851
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    File URL: https://mpra.ub.uni-muenchen.de/89851/1/MPRA_paper_89851.pdf
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    References listed on IDEAS

    as
    1. Niloy Bose & Salvatore Capasso & Martin Andreas Wurm, 2012. "The impact of banking development on the size of shadow economies," Journal of Economic Studies, Emerald Group Publishing, vol. 39(6), pages 620-638, December.
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    More about this item

    Keywords

    Financial development; the informal economy; panel data; SSA;

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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