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

  • José Brambila Macias

    ()

    (Department of Economics, University Of Venice Cà Foscari)

  • Guido Cazzavillan

    (Department of Economics, University Of Venice Cà Foscari)

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.

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Paper provided by Department of Economics, University of Venice "Ca' Foscari" in its series Working Papers with number 2008_42.

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Length: 25
Date of creation: 2008
Date of revision:
Handle: RePEc:ven:wpaper:2008_42
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