nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2012‒09‒22
seven papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. To be or not to be informal?: A Structural Simulation By Vargas, Jose P Mauricio
  2. Public Debt, Sovereign Default Risk and Shadow Economy By Ceyhun Elgin; Burak R. Uras
  3. Internet Usage and the Shadow Economy: Evidence from Panel Data By Ceyhun Elgin
  4. How has Mobile Phone Penetration Stimulated Financial Development in Africa? By Simplice A , Asongu
  5. The Life Cycle of Plants in India and Mexico By Hsieh, Chang-Tai; Klenow, Peter J.
  6. Poor Institutions, Rich Mines: Resource Curse and the Origins of the Sicilian Mafia By Paolo Buonanno; Ruben Durante; Giovanni Prarolo; Paolo Vanin
  7. Counter-Piracy in Somalia: Help or Hindrance? By Anja Shortland; Sarah Percy

  1. By: Vargas, Jose P Mauricio
    Abstract: The paper presents estimations of the informal economy size in Bolivia from an application of a Dynamic General Equilibrium Model. The parameter estimation is performed using maximum likelihood method to obtain, as an intermediate result, a latent variable estimation of the informal economy size. This procedure is new, as the estimate of the size of the informal economy using a dynamic structural model represents an alternative study area to latent variable models which assume relationships without a strong support in theory (MIMIC models). The results suggest that the size of the informal economy represents 60% of Bolivian GDP in 2010 and that the trend has been decreasing in the last decade. In addition, we simulated four alternative policies to reduce the size of the underground economy. Some of them allow to identify surprising response mechanisms which allows to analyze the flow of workers from the informal sector into the formal sector and vice versa. The research, besides quantifying the informal economy size, tries to provide a tool and methodology for evaluating alternative policy scenarios related to fiscal policy and labor mobility in a framework of an economy with a large informal sector and evasion.
    Keywords: Informal Economy; Kalman filter; Structural Model; Underground Economy
    JEL: E62 O43 C61 E26
    Date: 2012–05–18
  2. By: Ceyhun Elgin; Burak R. Uras
    Date: 2012–10
  3. By: Ceyhun Elgin
    Date: 2012–09
  4. By: Simplice A , Asongu
    Abstract: In the first macroeconomic empirical assessment of the relationship between mobile phones and finance, this paper examines the correlations between mobile phone penetration and financial development using two conflicting definitions of the financial system in the financial development literature. With the traditional IFS (2008) definition, mobile phone penetration has a negative correlation with traditional financial intermediary dynamics of depth, activity and size. However, when a previously missing informal-financial sector component is integrated into the definition, mobile phone penetration has a positive correlation with informal financial development. Three implications result: there is a growing role of informal finance; mobile phone penetration may not be positively assessed at a macroeconomic level by traditional financial development indicators and; it is a wake-up call for scholarly research on informal financial development indicators which will oriented monetary policy.
    Keywords: Banking; Mobile Phones; Shadow Economy; Financial Development; Africa
    JEL: L96 O17 E00 O33 G20
    Date: 2012–09–10
  5. By: Hsieh, Chang-Tai; Klenow, Peter J.
    Abstract: In the U.S., the average 40 year old plant employs almost eight times as many workers as the typical plant five years or younger. In contrast, surviving Indian plants exhibit little growth in terms of either employment or output. Mexico is intermediate to India and the U.S. in these respects: the average 40 year old Mexican plant employs twice as many workers as an average new plant. This pattern holds across many industries and for formal and informal establishments alike. The divergence in plant dynamics suggests lower investments by Indian and Mexican plants in process efficiency, quality, and in accessing markets at home and abroad. In simple GE models, we find that the difference in life cycle dynamics could lower aggregate manufacturing productivity on the order of 25% in India and Mexico relative to the U.S.
    Date: 2012–09
  6. By: Paolo Buonanno; Ruben Durante; Giovanni Prarolo; Paolo Vanin
    Abstract: This study explains the emergence of the Sicilian mafia in the XIX century as the product of the interaction between natural resource abundance and weak institutions. We advance the hypothesis that the mafia emerged after the collapse of the Bourbon Kingdom in a context characterized by a severe lack of state property-right enforcement in response to the rising demand for the protection of sulfur - Sicily's most valuable export commodity - whose demand in the international markets was soaring at the time. We test this hypothesis combining data on the early presence of the mafia and on the distribution of sulfur reserves across Sicilian municipalities and find evidence of a positive and significant effect of sulphur availability on mafia's diffusion. These results remain unchanged when including department fixed-effects and various geographical and historical controls, when controlling for spatial correlation, and when comparing pairs of neighboring municipalities with and without sulfur.
    Keywords: Natural Resource Curse, Weak Institutions, Mafia-type Organizations
    JEL: K42 N33 N54
    Date: 2012
  7. By: Anja Shortland; Sarah Percy
    Abstract: Might criminals in weak states benefit from better governance? We test the relationship between Somali piracy and local business conditions as well as (naval) law enforcement. Anarchy on land is not helpful to pirates, but corruptible governance is. Increasingly effective naval measures in the Gulf of Aden displaced piracy into the Indian Ocean.
    Date: 2012–09

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