Growing apart or moving together? Synchronization of informal and formal economy cycles

Arbeitspapier

We study the degree of synchronization between formal- and informal-economy business cycles. Using a comprehensive database of informal activity that covers a wide range of informality measures from almost 160 countries over the 1990-2018 period, we report two major results. First, fluctuations in informal-sector output are strongly positively correlated with those in formal-sector output. In contrast, fluctuations in informal employment are largely uncorrelated with those in formal-sector output. Second, movements in the formal economy tend to spillover to the informal economy. Using a novel set of instrumental variables, we show that fluctuations in formal-sector output "cause" movements in informal-sector output.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2115

Classification and Topics

• Classification: Wirtschaft ; Informal Economy; Underground Economy ; Business Fluctuations; Cycles ; Informal Labor Markets ; Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
• Subject: Informal economy ; self-employment ; business cycle

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Elgin, Ceyhun ; Kose, M. Ayhan ; Ohnsorge, Franziska ; Yu, Shu
• Event: Veröffentlichung
• (who): Koç University-TÜSIAD Economic Research Forum (ERF)
• (where): Istanbul
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/243018
• Last update: 10.03.2025, 11:44 AM CET