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on Informal and Underground Economics |
| By: | Narimen Rdhaounia; Malek Elweriemmi; Mohamed Kouni |
| Abstract: | This article investigates the dynamic interrelationships between the shadow economy, inflation, and economic growth in 15 countries of the Middle East and North Africa (MENA) region over the period 1991–2017. The study employs a simultaneous equations framework estimated through the Three-Stage Least Squares (3SLS) method, complemented by system GMM to address potential endogeneity issues. Empirical results reveal a bidirectional causal link between the shadow economy and inflation, highlighting their mutual reinforcement: the expansion of informal activities intensifies inflationary pressures by eroding public revenues and prompting monetary financing, while rising inflation encourages informal sector growth as agents seek protection against purchasing power erosion. Additionally, a two-way relationship between inflation and economic growth emerges, where moderate inflation can stimulate economic activity, but persistent high inflation hampers growth through price distortions and reduced real incomes. The shadow economy negatively impacts economic growth, with evidence showing that higher GDP levels reduce informality by expanding formal employment and compliance incentives. Nonetheless, the persistent size of the informal sector poses significant challenges for fiscal capacity and public investment, affecting infrastructure and social services. The robustness of these findings is confirmed through complementary estimation techniques. The article provides insights into the complex macroeconomic interactions characteristic of MENA economies, with important implications for policy aimed at promoting formalization, price stability, and sustainable growth. |
| Keywords: | Shadow economy, inflation, economic growth, MENA region, Three-Stage Least Squares (3SLS), GMM. |
| JEL: | E26 E31 O47 C31 C13 |
| Date: | 2026–01–03 |
| URL: | https://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2026_03 |
| By: | Andrés Álvarez (Universidad de los Andes); Oscar Becerra (Universidad de los Andes); Manuel Fernández (Universidad de los Andes) |
| Abstract: | Countries at similar income levels exhibit markedly different rates and anatomies of labor informality. We organize these patterns around three interacting forces: a legal wedge (minimum wages and non-wage labor costs, alongside enforcement), the sectoral productivity and composition, and the private value of formality (coverage, portability, and contract enforceability). A parsimonious model yields sharp “thin-margin” predictions: effects concentrate where earnings cluster near the minimum legal standards. Evidence from a cross-country, country–sector panel supports the framework—legal and enforcement effects are largest where thin-margin exposure is high; higher private value lowers informality and dampens wedge effects; and composition, especially within services, conditions aggregates. The results reconcile disparate findings and imply targeted policy: align enforcement with thin-margin exposure, raise the private value of formality via low-friction administration and portability, and pursue sectoral paths that expand formal-leaning activities. |
| Keywords: | Informal employment; informal sector; minimum wage; non-wage labor costs; sectoral composition. |
| JEL: | J46 O17 J38 J31 H55 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:col:000089:022171 |
| By: | María Florencia Pinto (CEDLAS-IIE-FCE-UNLP); Yulia Valdivia Rivera (University of Chicago, Harris School of Public Policy); Hernan Winkler (World Bank) |
| Abstract: | This article examines the effects of strengthened labor regulation enforcement on labor market outcomes in Peru from 2010 to 2019. In 2013, the Peruvian government established a national labor inspection agency, which was progressively rolled out nationwide. This reform led to a substantial increase in the frequency and severity of fines imposed on formal firms. Despite this heightened enforcement, our analysis using extended two-way fixed effects models finds no significant effects on overall employment levels. Moreover, there is no evidence of changes along either the intensive margin—informal employment within formal firms—or the extensive margin—the share of employment in informal firms. These findings suggest that increased enforcement of labor regulations did not lead to measurable shifts in labor informality or employment outcomes during this period. |
| JEL: | H26 J3 O23 O17 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:dls:wpaper:0363 |
| By: | Barasa, Laura (University of Nairobi, School of Economics); Kihiu, Evelyne (International Potato Center); Vaz, João Manuel Lameiras (Universidade Nova de Lisboa, Campolide Campus); Tanga, Chrysantus (International Centre of Insect Physiology and Ecology) |
| Abstract: | Food and nutrition insecurity, combined with poor waste management and sanitation, are common features of urban informal settlements. We conducted a cluster-randomized controlled trial with 810 households in Kibera to evaluate the effects of urban agriculture interventions—climate smart gardens (CSGs) and black soldier fly frass fertilizer (BSFFF) derived from recycled human waste—on food and nutrition security, household welfare, and food production. The interventions significantly enhanced food and nutrition security and home food production, with stronger effects observed in female-headed households. While vegetable consumption expenditure declined, food and total consumption expenditure remained unaffected. These results underscore the potential of circular economy interventions to simultaneously improve nutrition, waste management, and gender equity in densely populated informal settlements. |
| Keywords: | urban agriculture; informal settlements; climate smart gardens; frass fertilizer; food and nutrition security; household welfare; food production; gender equality |
| JEL: | I31 N57 Q12 Q15 Q18 Q53 |
| Date: | 2026–02–11 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:gunefd:2026_001 |