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Informality and bank stability

Author

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  • Liu-Evans, Gareth
  • Mitra, Shalini

Abstract

While financial development (FD) has been widely studied in the literature as a determinant of informal sector size, there has been no focus on the role of financial stability. We find that the stability of the banking sector has a significant and robust negative effect on informality across countries. Using a recently available testing methodology based on a heteroskedasticity-robust Lasso we also find strong support for Rule of Law as a key determinant of informal sector size, and some evidence for the effect of FD.

Suggested Citation

  • Liu-Evans, Gareth & Mitra, Shalini, 2019. "Informality and bank stability," Economics Letters, Elsevier, vol. 182(C), pages 122-125.
    • Handle: RePEc:eee:ecolet:v:182:y:2019:i:c:p:122-125
    DOI: 10.1016/j.econlet.2019.06.012
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    Citations

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    Cited by:

    1. KOUAKOU, Dorgyles C.M. & YEO, Kolotioloma I.H., 2023. "Can innovation reduce the size of the informal economy? Econometric evidence from 138 countries," MPRA Paper 119264, University Library of Munich, Germany.
    2. Selçuk Akçay & Emre Karabulutoğlu, 2021. "Do remittances moderate financial development–informality nexus in North Africa?," African Development Review, African Development Bank, vol. 33(1), pages 166-179, March.
    3. Gareth Liu-Evans & Shalini Mitra, 2023. "Formal sector enforcement and welfare," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(3), pages 706-728, June.
    4. Paraskevi Koufopoulou & Colin C. Williams & Athanassios Vozikis & Kyriakos Souliotis & Antonios Samprakos, 2021. "Estimating Shadow Economy Size in Greece 2000 - 2018: A Flexible MIMIC Approach," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 71(3-4), pages 23-47, July-Dece.
    5. Balde, Racky, 2021. "Financial development and small firms’ tax compliance in Sub-Saharan Africa," MERIT Working Papers 2021-041, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    6. Fotié, Andrée Kenne & Mbratana, Taoufiki, 2024. "Informality and development: The nonlinear effect," Economics Letters, Elsevier, vol. 234(C).

    More about this item

    Keywords

    Informality; Bank stability; Financial development; Rigorous Lasso; Rule of Law;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G2 - Financial Economics - - Financial Institutions and Services
    • H1 - Public Economics - - Structure and Scope of Government
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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