Peripheral accumulation in the world economy: A cross-national analysis of the informal economy

Abstract

The persistence and growth of the informal economy have puzzled researchers and challenged mainstream explanations of the development of the informal economy. This study utilizes a world-systems approach for explaining cross-national variation in the size of the informal economy for a sample of 74 developing and developed countries observed over a recent 8-year period (1999–2007). According to this approach, the informal economy is a characteristic of peripheral accumulation in the world economy and its development is driven by unequal exchange in international trade and foreign capital penetration. Based on estimates from random and fixed-effects regression models using multiple measures of world-system position, countries in the periphery and semi-periphery of the world economy have larger informal economies than core countries. More importantly, this difference in the development of the informal economy between the core, semi-periphery, and periphery is partially explained by the effects of international trade and foreign direct investment. Overall, the findings indicate that the development and persistence of the informal economy are driven by the structure of the world economy and processes of economic globalization.