The Informal Economy in Sub-Saharan Africa: Size and Determinants

By Leandro Medina, Andrew W Jonelis, Mehmet Cangul

July 10, 2017

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Leandro Medina, Andrew W Jonelis, and Mehmet Cangul. The Informal Economy in Sub-Saharan Africa: Size and Determinants, (USA: International Monetary Fund, 2017) accessed September 19, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The multiple indicator-multiple cause (MIMIC) method is a well-established tool for measuring informal economic activity. However, it has been criticized because GDP is used both as a cause and indicator variable. To address this issue, this paper applies for the first time the light intensity approach (instead of GDP). It also uses the Predictive Mean Matching (PMM) method to estimate the size of the informal economy for Sub-Saharan African countries over 24 years. Results suggest that informal economy in Sub-Saharan Africa remains among the largest in the world, although this share has been very gradually declining. It also finds significant heterogeneity, with informality ranging from a low of 20 to 25 percent in Mauritius, South Africa and Namibia to a high of 50 to 65 percent in Benin, Tanzania and Nigeria.

Subject: Currencies, Economic sectors, Informal economy, Labor, Labor force participation, Money, National accounts, Personal income, Unemployment rate

Keywords: Currencies, Economic activity, Estimation, GDP, Informal economy, Informal economy activity, Informal economy growth, Labor force participation, Mimic approach, MIMIC estimation methods, Model estimation result, Personal income, Phrase informal economy, Sub-Saharan Africa, Unemployment rate, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/156
Stock No:

WPIEA2017156
ISBN:

9781484305942
ISSN:

1018-5941

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