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Financial inclusion and the informal sector

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  • Rojas Cama, Freddy
  • Emara, Noha
  • Trabelsi, Mohamed

Abstract

This paper explores the relationship between the informal sector and financial inclusion for a sample of 186 countries across the period 2004–2018 by using various methods of estimations—ordinary least squares, instrumental variables, fixed effects, and general method of moments. The results show financial inclusion significantly reduces the size of the shadow economy throughout indicators of access and usage of financial services. The results are also robust when controlling by income level, these results strongly support the use of financial inclusion as an effective vehicle to lessen informality. Our policy recommendations are directed towards improving financial infrastructure and fostering inclusive financial environments to effectively decrease informality. Adopting dynamic, long-term strategies to sustain financial inclusiveness is key to achieving lasting reductions in the informal sector.

Suggested Citation

  • Rojas Cama, Freddy & Emara, Noha & Trabelsi, Mohamed, 2024. "Financial inclusion and the informal sector," Research in International Business and Finance, Elsevier, vol. 70(PB).
    • Handle: RePEc:eee:riibaf:v:70:y:2024:i:pb:s0275531924001727
    DOI: 10.1016/j.ribaf.2024.102379
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    More about this item

    Keywords

    Financial Inclusion; Informal Sector; Dynamic Panel GMM;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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