Abstract
This study identifies the factors that describe informal economies and summarizes them into indices measuring informality. We use data from 189 countries for the years 2015 and 2020. We carry out a factor analysis to identify the variables which structure informal economies and use the scores from a logistic regression to measure the degree of informality for each country. The results show that the degree of informality is related to the level of development. Thus, developing countries are generally those with the highest degree of informality while developed countries are generally characterized by a low level of informality. One of the important contributions of this paper is the method used to derive and then determine the depth of the informal economy in each country from the logistic regressions. Since the informal economy is not directly measurable, we first construct a binary variable named “prior informality.” It is this variable that will be used in the logistic regression to measure the magnitude of the informal economy in each country. Thus, we construct a synthetical indicator that takes into account all dimensions of the informal economy with their particularity depending on whether we are in developed countries, in middle-income countries, or in underdeveloped countries. Mathematically, the principal component analysis gives us the best graphical representations of informal economies according to their characteristics. Likewise, the study enables us to classify countries into groups according to the variables that determine informality and draw dynamic charts representing the countries according to their level of informality.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
National Institute of Statistics of Cameroon (2006, 2011).
There are many synonyms of “informal economy” in the literature. Some authors prefer to use the terms underground economy, Feige (1997); dark economy, Lyssiotou and al. (2004); and shadow economy, Schneider (2004).
In the MIMIC literature, due to the methodology and the way the model is built, the authors separate the variables into two groups: causal variables and indicator variables. We are interested in reconstructing informality, using what the literature considers marks of informality. All the indicators we use are observable and measurable and are suitable for our methodology.
max denotes the maximum observed for the variable X; j = 1, 2,…N lists the countries; N is the number of countries.
\({e}_{i}\) follows a logistic law, if the distribution function F is written as \(F\left(x\right)={\text{Prob}}\left({e}_{i}\le x\right)=\frac{1}{1+{\text{exp}}(-x)}\). Note that the density function is written: \(f\left(x\right)=\frac{{\text{exp}}(x)}{{\left[1+{\text{exp}}(x)\right]}^{2}}\). We directly notice that \({\text{Prob}}\left({e}_{i}>-x\right)=\frac{{\text{exp}}(x)}{1+{\text{exp}}(x)}\).
References
Bacchetta M, Ernst E, Bustamante J (2009) Globalization and informal jobs in developing countries. International Labour Organization, Geneva
BIT (2002a). Travail décent et économie informelle : sixième question à l’ordre du jour : Genève, Conférence Internationale du Travail, 90ième session
BIT (2002b). Femmes et hommes dans l’économie informelle: image statistique: BIT, Genève
Cagan P (1958) The demand for currency relative to the total money supply. J Polit Econ 66:303–329
Cagan P (1958) The demand for currency relative to the total money supply. Journal of Political Economy 66(4):303–328
INSTITUT NATIONAL DE LA STATISTIQUE du Cameroun (2011) Deuxième enquête sur l’emploi et le secteur informel au Cameroun, phase 1, enquête sur l’emploi, Rapport principal
Contini B (1981) Labour market segmentation and the development of the parallel economy: the Italian experience. Oxf Econ Pap 2:401–412
Davidson R, Mackinnon JG (1993) Estimation and inference in econometrics. Oxford University Press, New York
DE Soto H (1989) The Other Path. Harper and Row, New York
Dell’Anno R. (2022). Estimating the shadow economy in Italy: a structural equation approach. Working Paper No. 2003–07, University of Aarhus - Denmark
Dounya M, Ngouhouo I, Fantcho J, Tchuani N (2020) The characteristics and spatial modelling of informal economies: Asian Journal of. Econ Model 8(3):165–168
Duncan OD (1975) Introduction to structural equation models. Academic Press, New York
Enste D, Schneider F (2000) Shadow economies: size, causes, and consequences. Journal of Economic Literature 38(1):77–114
Feige EL (1979) How Big is the Irregular Economy? Challenge 22(5):5–13
Feige EL (1989) Currency velocity and cash payments in the U.S. economy: the currency enigma, MPRA Paper 13807, University Library of Munich, Germany
Fortin, B. (2002) Les enjeux de l’économie souterraine: Série Scientifique, 82, CIRANO
Frey BS, Weck H (1983) Estimating the shadow economy: a “naive” approach. Oxf Econ Pap 35:23–44
GREGOSZ D et al (2020) Coronavirus infects the global economy: the economic impact of an unforeseeable. pandemic. Konrad-Adenauer-Stiftung, Facts & Findings, No 384 JSTOR
Gutmann PM (1977) The subterranean economy. Financial Analysts Journal 34:26–28
Harris JR, Todaro MP (1970) Migration, unemployment and development: a two-sector analysis. American Economic Review 60(1):126–142
Helberger C, Knepel H (1988) How big is the shadow economy? A re-analysis of the unobserved-variable approach of Frey, B.S. and Weck, H. Eur Econ Rev 32:965–976
INSTITUT NATIONAL DE LA STATISTIQUE (2006) Enquête sur l’emploi et le secteur informel au Cameroun en 2005, phase 2, Enquête sur le secteur informel, Rapport principal
KaufmannKaliberda DA (1996) Integrating the unofficial economy into the dynamics of post-socialist economies: a framework of analysis and evidence. Kaminski and Bartlomiej, Economic Transition in Russia and the New States of Eurasia, International Politics of Eurasia 8:81–120
Maloney W (2004) Informality Revisited. World Dev 32(7):1159–1178
Maurizio R (2012) Labour informality in Latin America: the case of Argentina, Chile, Brazil and Argentina, BWPI Working Papers 165/2012, University of Manchester
Medina, L. and Schneider, F. (2018), Shadow economies around the world: what did we learn over the last 20 years, IMF Working Paper WP018, IMF, Washington DC, USA
Medina, L. and Schneider , F. (2019), Shedding light on the shadow economy: a global database and the interaction with the official one, CESifo Working Papers, Economic Research – CESifo
Medina L, Schneider F (2021) The evolution of shadow economies through the 21st century. International Monetary Fund, Washington DC, USA, S. 10–6
Muheme, G.B. (1995). L’économie informelle face à l’évolution du dualisme. Conceptualisation théorique et illustration par l’étude de l’itinéraire agro-économique de la filière Mboga, Québec, Thèse, Université Laval
OECD (2002) Measuring the non-observed economy: a handbook. ILO/IMF Statistical Committee of the Commonwealth of Independent States/OECD Publishing, Paris
Poters A, Castells M, Benton LA (1989) The Informal economy: studies in advanced and less developed countries. The John Hopkins University Press, Baltimore
Schneider F (2004) The size of the shadow economies of 145 countries all over the world: first results over the period 1999 to 2003, IZA Discussion Paper 1431
Schneider F (2022) New COVID‑related results for estimating the shadow economy in the global economy in 2021 and 2022. International Economics and Economic Policy
Simon C, Witte A (1982) Beating the system: the underground economy Harold M. Somers Policy Sciences 15(1):87–89
Tanzi V (1980) The underground economy in the United States: estimates and implications. Banca Nazionale Del Lavoro 135(4):427–453
Thomas J (1992) Informal economic activity. Handbooks in economics, London, Harvester Wheatsheaf, LSE
Walther R (2006) La formation professionnelle en secteur informel : Rapport sur l’enquête terrain au Cameroun, Document de Travail de L’Agence Française de Développement, 17
Author information
Authors and Affiliations
Corresponding author
Additional information
Publisher's note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Appendix
Rights and permissions
Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
About this article
Cite this article
Fantcho, J.E., N’Gouan, P.K. Spatial characteristics and dynamic modeling of informal economies. Int Econ Econ Policy 21, 483–514 (2024). https://doi.org/10.1007/s10368-024-00609-9
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10368-024-00609-9