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Does informal economy impede economic growth? Evidence from an emerging economy

Author

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  • Nguyen Vinh Khuong
  • Malik Shahzad Shabbir
  • Muhammad Safdar Sial
  • Thai Hong Thuy Khanh

Abstract

The objective of this study is to re-examine the impact of the informal economy on economic growth in Pakistan. This study first computed the informal economy through currency demand equation and then the adopted auto-regressor distributed lags (ARDL) technique for data analysis. The result indicates that 56% informal economy of gross domestic product (GDP) exists in Pakistan. The Wald F-test shows that the overall model is statistically significant because the value of this test (13.4) is more than the upper and lower bounds values. Whereas Engle-Granger causality test describes that the growth rate of real GDP causes the Granger to GDP at 5%. This study tries to solve these issues and give a new policy implication for policymakers to control the informal economy and make sure that this sector will convert into a recorded or reported form.

Suggested Citation

  • Nguyen Vinh Khuong & Malik Shahzad Shabbir & Muhammad Safdar Sial & Thai Hong Thuy Khanh, 2021. "Does informal economy impede economic growth? Evidence from an emerging economy," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 11(2), pages 103-122, April.
    • Handle: RePEc:taf:jsustf:v:11:y:2021:i:2:p:103-122
    DOI: 10.1080/20430795.2020.1711501
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    Cited by:

    1. Amogh Ghimire & Feiting Lin & Peifen Zhuang, 2021. "The Impacts of Agricultural Trade on Economic Growth and Environmental Pollution: Evidence from Bangladesh Using ARDL in the Presence of Structural Breaks," Sustainability, MDPI, vol. 13(15), pages 1-15, July.
    2. Sultana, Nahid & Rahman, Mohammad Mafizur & Murad, S.M. Woahid, 2024. "Asymmetric role of the informal sector on economic growth: Empirical investigation on a developing country," Structural Change and Economic Dynamics, Elsevier, vol. 69(C), pages 96-107.
    3. Durdana Qaiser Gillani & Hassan Shakeel Shah & Hafiza Nadia Bashir, 2021. "Gender and Urban Informal Sector Employment: An Analysis from Southern Punjab, Pakistan," Journal of Economic Impact, Science Impact Publishers, vol. 3(3), pages 152-157.
    4. Ada Aliaj & Rovena Vangjel, 2023. "Financial Development and Its Impact on the Shadow Economy in Albania," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 12, May.
    5. Ergin Akalpler, 2023. "Triggering economic growth to ensure financial stability: case study of Northern Cyprus," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-40, December.

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