Can we understand the simultaneous evolution between economic and informality growth in Africa? A preliminary explanation

Abstract

This paper is interested in explaining the causes of the simultaneous evolution between economic and informality growth. Using a large annual panel of African countries with a time series of 25 years, our results are paradoxical: the effect of growth on the informal sector becomes contradictory in the presence of high corruption rates. When the corruption rate is low (>1.3577), growth is indirectly related to the informal sector and vice versa when it is high (<1.3577). The results, which highlight a previously unknown paradox, contribute significantly to the existing literature on the subject and are robust to alternative specifications. It is therefore desirable for policymakers to improve the transparency of interactions between firms, public and private agents to fight corruption.