Analysis of the Gap in Economic Informality between Africa and the Advanced and Emerging Countries

Abstract

This paper analyzes the factors that account for economic informality disparities between African countries and advanced and emerging economies. The study encompasses a survey of 84 nations, comprising 44 African countries, during the span of 1995-2015. The econometric outcomes, acquired from Krӧger and Hartmann's (2021) decomposition model, indicate that, on average, the level of informality in African country's economy is greater than that of advanced and emerging countries (OECD+). An increase in the standard of living of the population, an improvement in the control of corruption and the strengthening of financial development could enable African countries to reduce the explained gap. However, fiscal freedom, technological infrastructure, trade liberalization and political stability increase the explained gap. Furthermore, human capital and technological infrastructure reduce the total gap.