Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/243018 
Year of Publication: 
2021
Series/Report no.: 
Working Paper No. 2115
Publisher: 
Koç University-TÜSIAD Economic Research Forum (ERF), Istanbul
Abstract: 
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.
Subjects: 
Informal economy
self-employment
business cycle
JEL: 
E26
E32
J46
O17
Document Type: 
Working Paper

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