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Asymmetric Analysis of Causal Relations in the Informality–Globalisation Nexus in Africa

Author

Listed:
  • Segun Thompson Bolarinwa

    (Govan Mbeki Research and Development Centre, University of Fort Hare, East London 5201, South Africa)

  • Munacinga Simatele

    (Govan Mbeki Research and Development Centre, University of Fort Hare, East London 5201, South Africa)

Abstract

This study examines the causal relationship between informality and globalisation in 30 African countries. It deviates from traditional research by adopting a bi-directional framework to address reverse causality. By applying the DH causality method in both linear and nonlinear frameworks, this research challenges the assumption of a linear relationship and finds that the causal structure is better explained within a nonlinear asymmetric context. This paper provides recommendations based on the identified causal relationships. For countries in which globalisation leads to informality, such as Angola, Congo, Guinea, Gambia, Mozambique, Sierra Leone, Tunisia, Tanzania, Uganda, Zambia, and Zimbabwe, the paper suggests policy measures to integrate the informal sector into the formal economy. These measures include designing programmes to facilitate transition, implementing skill development initiatives, and establishing support mechanisms for entrepreneurship and small businesses. Additionally, this paper advises the development of social safety nets, improved market access, effective monitoring and regulation mechanisms, education on the benefits of globalisation, and international cooperation. For countries experiencing positive shocks from informality to globalisation, this paper recommends targeted support programs for entrepreneurship, initiatives to formalize the sector, the enhancement of market access, and skill development tailored to the needs of the informal sector. These policy recommendations aim to capitalize on the positive shocks in informality by fostering entrepreneurship, formalization, market access, and skill development. In the case of negative shocks in globalisation leading to positive shocks in informality, the paper suggests implementing resilience-building policies for the informal sector during economic downturns, establishing social safety nets, and adopting flexible labour policies.

Suggested Citation

  • Segun Thompson Bolarinwa & Munacinga Simatele, 2024. "Asymmetric Analysis of Causal Relations in the Informality–Globalisation Nexus in Africa," Economies, MDPI, vol. 12(7), pages 1-25, June.
  • Handle: RePEc:gam:jecomi:v:12:y:2024:i:7:p:166-:d:1424811
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    References listed on IDEAS

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    1. Hatemi-J, Abdulnasser, 2020. "Asymmetric Panel Causality Tests with an Application to the Impact of Fiscal Policy on Economic Performance in Scandinavia," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 73(3), pages 389-404.
    2. Folorunsho M. Ajide & James T. Dada, 2023. "Globalization and shadow economy: a panel analysis for Africa," Review of Economics and Political Science, Emerald Group Publishing Limited, vol. 9(2), pages 166-189, December.
    3. Baltagi, Badi H. & Feng, Qu & Kao, Chihwa, 2012. "A Lagrange Multiplier test for cross-sectional dependence in a fixed effects panel data model," Journal of Econometrics, Elsevier, vol. 170(1), pages 164-177.
    4. Pham, Thi Hong Hanh, 2017. "Impacts of globalization on the informal sector: Empirical evidence from developing countries," Economic Modelling, Elsevier, vol. 62(C), pages 207-218.
    5. Phuc Nguyen Canh & Christophe Schinckus & Su Dinh Thanh, 2021. "What are the drivers of shadow economy? A further evidence of economic integration and institutional quality," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 30(1), pages 47-67, January.
    6. Clement Olalekan Olaniyi, 2020. "Application of Bootstrap Simulation and Asymmetric Causal Approach to Fiscal Deficit-Inflation Nexus," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 12(2), pages 123-140, May.
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