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Does infrastructure development matter for the shadow economy in African countries?

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  • Paul Ningaye
  • Isaac Ketu

Abstract

Understanding the determinants of the informal economy is a crucial issue in economic development due to its far-reaching effects on development efforts. Previous studies focused exclusively on factors that can potentially reduce the relative size of the shadow economy. However, these attempts have not enjoyed much success to date in Africa, where informality has continued to thrive. We contend that realistic medium-term goals, as opposed to obligatory formalisation, could increase the output of informal businesses by providing enough infrastructure and a welcoming business climate, which would at the same time foster formalisation. Using OLS, FE and system GMM with data on 42 African countries covering 2003–2018, we find that infrastructure development reduces the relative size of the shadow economy in African countries. Our results remained consistent when we controlled for the effects of other determinants of the informal economy, employed other estimators, and used an alternative measure of the informal economy.

Suggested Citation

  • Paul Ningaye & Isaac Ketu, 2023. "Does infrastructure development matter for the shadow economy in African countries?," International Review of Applied Economics, Taylor & Francis Journals, vol. 37(3), pages 290-310, May.
    • Handle: RePEc:taf:irapec:v:37:y:2023:i:3:p:290-310
    DOI: 10.1080/02692171.2023.2197642
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    Cited by:

    1. Kelly, Arsene Mouongue & Ngo Nguéda Radler, Romaine Doline, 2024. "Does energy consumption matter for climate change in Africa? New insights from panel data analysis," Innovation and Green Development, Elsevier, vol. 3(3).
    2. Isaac Ketu & Arsene Mouongue Kelly & Jules-Eric Tchapchet Tchouto, 2024. "Does economic complexity reduce the size of the shadow economy in African countries?," SN Business & Economics, Springer, vol. 4(1), pages 1-27, January.

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