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

32 Pages Posted: 9 Aug 2017

See all articles by Leandro Medina

Leandro Medina

George Washington University - Department of Economics; International Monetary Fund (IMF) - Western Hemisphere Department

Andrew Jonelis

International Monetary Fund (IMF)

Mehmet Cangul

International Monetary Fund (IMF)

Date Written: July 2017

Abstract

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.

Keywords: Uganda, South Africa, Rwanda, Senegal, Seychelles, Sierra Leone, Sudan, Swaziland, Tanzania, Togo, Zambia, Zimbabwe, Congo, Democratic Republic of the, Congo, Republic of, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Angola, Benin, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoros, Kenya, Lesotho, Liberia, Gabon, Gambia, The, Ghana, Guinea, Guinea-Bissau, Madagascar, Malawi, Mali, Mauritania, Mauritius, Mozambique, Namibia, Niger, Nigeria, Informal economy, MIMIC estimation methods, Sub-Saharan Africa

JEL Classification: E26, E01, H26, H32, K42, P24, O17

Suggested Citation

Medina, Leandro and Jonelis, Andrew and Cangul, Mehmet, The Informal Economy in Sub-Saharan Africa: Size and Determinants (July 2017). IMF Working Paper No. 17/156, Available at SSRN: https://ssrn.com/abstract=3014086

Leandro Medina (Contact Author)

George Washington University - Department of Economics ( email )

Monroe Hall, Suite 340
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International Monetary Fund (IMF) - Western Hemisphere Department

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Washington, DC 20431
United States

Andrew Jonelis

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Mehmet Cangul

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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