Article Sidebar

Submitted
November 4, 2024
Accepted
February 26, 2025
Published
April 29, 2025
Download
Full text PDF
Statistic
Read Counter : 119 Download : 86

Downloads

Download data is not yet available.

Main Article Content

Abstract

Purpose — This paper examines the impact of the informal economy and institutional quality on socioeconomic conditions in 35 African countries from 2000 to 2022.
Methods — The study employs Driscoll-Kraay, Fully Modified Ordinary Least Squares, Method of Moments Quantile Regression, Dynamic Panel Threshold, and Dumitrescu-Hurlin (D-H) Granger non-causality techniques.
Findings — The findings indicate that the informal economy significantly worsens socioeconomic conditions, whereas stronger institutional quality, evident in factors such as government stability and corruption control, enhances these outcomes. A critical institutional quality threshold of 5.282 is established, suggesting that countries with institutional quality above this level experience substantial improvements in socioeconomic conditions. Unidirectional causality from the informal economy to socioeconomic conditions and a bidirectional relationship between institutional quality and socioeconomic outcomes are also noted.
Implication — Enhancing institutional quality is essential for promoting economic development and improving overall well-being in African and similar countries. Addressing institutional weaknesses could enable these countries to exceed the quality threshold and achieve better socioeconomic outcomes.
Originality — This research differs from previous ones by investigating the effects of both informality and institutional quality within a threshold framework on socioeconomic situations in African countries. Furthermore, it includes a socioeconomic conditions index that combines three subcomponents: poverty, unemployment, and consumer confidence. Additionally, the study employs various measures of institutional quality to explore their differing impacts on socioeconomic conditions.

Keywords

informality institutions socioeconomic conditions panel analysis Africa

Article Details

License

Copyright (c) 2025 Tolulope Osinubi, Munacinga Simatele

Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Authors who publish with this journal agree to the following terms:

  1. Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-ShareAlike 4.0 International License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
  2. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
  3. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).

Creative Commons License

Economic Journal of Emerging Markets by Center for Economic Studies, Universitas Islam Indonesia is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

How to Cite
Osinubi, T., & Simatele, M. (2025). Informal economy, institutional quality, and socioeconomic conditions in African countries. Economic Journal of Emerging Markets, 17(1), 95–109. https://doi.org/10.20885/ejem.vol17.iss1.art8
Download Citation
Endnote/Zotero/Mendeley (RIS)
BibTeX

References

  1. Abé Ndjié, A., Atangana Ondoa, H., & Ngoa Tabi, H. (2019). Governance and youth unemployment in Africa. Labor History, 60(6), 869–882.
  2. Ajide, F. M., & Dada, J. T. (2024a). Energy poverty and shadow economy: evidence from Africa. International Journal of Energy Sector Management, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJESM-04-2023-0018
  3. Ajide, F. M., & Dada, J. T. (2024b). Globalization and shadow economy: a panel analysis for Africa. Review of Economics and Political Science, 9(2), 166-189.
  4. Aluko, O. A., & Ibrahim, M. (2021). Institutions and financial development in ECOWAS. Journal of Sustainable Finance & Investment, 11(2), 187-198. DOI: 10.1080/20430795.2020.1717240
  5. Baltagi, B. H., Feng, Q., & Kao, C. (2012). A Lagrange multiplier test for cross-sectional dependence in a fixed effects panel data model. Journal of Econometrics, 170(1), 164–177.
  6. Becker, K.F. (2004). Fact-finding study-The Informal Economy. Stockholm: Sida Department for Infrastructure and Economic Co-operation. Art. no: SIDA3630en.
  7. Breusch, T. S., & Pagan, A. R. (1980). The Lagrange multiplier test and its applications to model specification in econometrics. The review of economic studies, 47(1), 239-253.
  8. Bolarinwa, S. T., & Simatele, M. (2023). Informality and poverty in Africa: Which comes first? Sustainable Development, 31(3), 1581–1592. https://doi.org/10.1002/sd.2468
  9. Canelas, C. (2019). Informality and poverty in Ecuador. Small Business Economics, 53(4), 1097-1115.
  10. Castells, M., & Portes, A. (1989). World underneath: the origins, dynamics and effects of the Informal Economy. In A. Portes, M. Castells and L.A. Benton (eds), The informal economy, The Johns Hopkins University Press, Baltimore, MD
  11. Chen, M. A. (2014). The informal economy: Definitions, theories and policies. WIEGO Working Paper No. 1, 90141-90144.
  12. Cichello, P., & Rogan, M. (2017). A job in the informal sector reduces poverty about as much as a job in the formal sector. www.econ3x3.org
  13. Dada, J. T., Ajide, F. M., & Sharimakin, A. (2021). Shadow economy, institutions and environmental pollution: insights from Africa. World Journal of Science, Technology and Sustainable Development, 18(2), 153-171.
  14. Dada, J. T., Olaniyi, C. O., Ajide, F. M., Adeiza, A., & Arnaut, M. (2022). Informal economy and ecological footprint: the case of Africa. Environmental Science and Pollution Research, 29(49), 74756-74771.
  15. Darin-Mattsson, A., Fors, S. & Kåreholt, I. (2017). Different indicators of socioeconomic status and their relative importance as determinants of health in old age. International Journal for Equity in Health, 16(173), 1-11.
  16. De Soto, H. (1989). The other path: The invisible revolution in the third worlds’, Harper and Row Publishers, New York.
  17. Diallo, A., Yin, Z.H. and Beckline, M. (2017) Assessing the socioeconomic impacts of the informal sector in Guinea, West Africa. Open Access Library Journal, 4, 1-9.
  18. Dumitrescu, E. I., & Hurlin, C. (2012). Testing for Granger non–causality in heterogeneous panels. Economic Modelling, 29(4), 1450–1460. https://doi.org/10.1016/j.econmod.2012.02.014
  19. Elgin, C., Kose, M. A., Ohnsorge, F., & Yu, S. (2021). Understanding informality. CERP Discussion Paper 16497, Centre for Economic Policy Research, London.
  20. Fagbemi, F., & Asongu, S. (2020). COVID-19 and socioeconomic crises in Africa: Overview of the prevailing incidents. Forthcoming. Regional Economic Development Research, 1-13 (special issue).
  21. Fagbemi, F., Nzeribe, G. E., Osinubi, T. T., & Asongu, S. (2021). Interconnections between governance and socioeconomic conditions: Understanding the challenges in sub-Saharan Africa. Regional Sustainability, 2(4), 337-348.
  22. Fields, G.S. (1975). Rural–urban migration, urban unemployment and underemployment, and job-search activity in LDCs. Journal of Development Economics, 2(2), 165–187.
  23. Galal, S. (2024a). Extreme poverty as share of global population in Africa 2024, by country. https://www.statista.com/statistics/1228553/extreme-poverty-as-share-of-global-population-in-africa-by-country/ (accessed on May 5, 2024).
  24. Galal, S. (2024b). Unemployment rate in Africa from 2012 to 2024. https://www.statista.com/statistics/1319860/unemployment-rate-in-africa/ (accessed on May 5, 2024).
  25. Gasparini, L., & Tornarolli, L. (2009). Labor informality in Latin America and the Caribbean: patterns and trends from household survey microdata. Desarrollo y Sociedad, 2009, 13–80.
  26. Gómez, M., & Irewole, O. E. (2023). Economic growth, inflation and unemployment in Africa: an autoregressive distributed lag bounds testing approach, 1991–2019. African Journal of Economic and Management Studies, 15(2), 318-330.
  27. Hart, K. (2009). Anthropologie de la globalisation by Abélès, Marc Globalization: the key concepts by Eriksen, Thomas Hylland. Social Anthropology/Anthropologie Sociale, 17(1), 115-117.
  28. Jamil, B., Yaping, S., Din, N. U. D., & Nazneen, S. (2022). Do effective public governance and gender (in)equality matter for poverty? Economic Research-Ekonomska Istraživanja, 35(1), 158–174.
  29. Kırşanlı, F. (2023). Institutional Quality and Informal Economy Nexus in the Middle East and North Africa, 1-13. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4529962
  30. Krstić, G., & Sanfey, P. (2007). Mobility, poverty and well-being among the informally employed in Bosnia and Herzegovina. Economic Systems, 31(3), 311-335.
  31. La Porta, R., & Shleifer, A. (2014). Informality and development. Journal of Economic Perspectives, 28(3), 109-126.
  32. Lewis, W.A. (1954). Economic development with unlimited supplies of labour. The Manchester School, 22(2), 139–191.
  33. Loayza, N.V., Serven, L., Sugawara, N. (2009). Informality in Latin America and the Caribbean. Policy Research Working Paper 4888, World Bank.
  34. Lopez, L., & Weber, S. (2017). Testing for Granger causality in panel data. The Stata Journal, 17(4), 972–984.
  35. Machado, J. A., & Silva, J. S. (2019). Quantiles via moments. Journal of Econometrics, 213(1), 145-173.
  36. Makame, M.J., & Christine, A. (2024). The impact of informal sector practices on socio-economic status: A case study of Magharibi District-Zanzibar. IAA Journal of Management, 11(1),14-19.
  37. Medina, L. & Schneider, F. (2018), Shadow Economies Around the World: What Did We Learn over the Last 20 Years? IMF Working Paper WP/18/17, International Monetary Fund.
  38. Mensah, I.A., Sun, M., Omari-Sasu, A.Y., Gao, C., Obobisa, E.S., & Osinubi, T.T. (2021). Potential Economic Indicators and Environmental Quality in African Economies: New Insight from Cross-Sectional Autoregressive Distributed Lag Approach. Environmental Science and Pollution Research, 28(40), 56865-56891.
  39. North, D.C. (1990). Institutions, institutional change and economic performance. Cambridge University Press: New York.
  40. Ochi, A., Saidi, Y., & Labidi, M. A. (2023). Nonlinear threshold effect of governance quality on poverty reduction in South Asia and sub-Saharan Africa: A dynamic panel threshold specification. Journal of the Knowledge Economy, 15(1), 4239-4264.
  41. Ofori, I. K., Dossou, T. A. M., & Akadiri, S. S. (2023). Towards the quest to reduce income inequality in Africa: is there a synergy between tourism development and governance? Current Issues in Tourism, 26(3), 429-449.
  42. Ogbonna, A. E., Adediran, I. A., Oloko, T. F., & Isah, K. O. (2023). Information and Communication Technology (ICT) and youth unemployment in Africa. Quality & Quantity, 57(6), 5055-5077.
  43. Ohnsorge, F., & Yu, S. (2022). The long shadow of informality: Challenges and policies. World Bank Publications., 2, 255–321.
  44. Olaniyi, C. O. (2023). Do the same executive compensation strategies and policies fit all the firms in the banking industry? New empirical insights from the CEO pay–firm performance causal nexus. Managerial and Decision Economics, 44(7), 4136-4160.
  45. Olaniyi, C. O., & Odhiambo, N. M. (2024). Do natural resource rents aid renewable energy transition in resource‐rich African countries? The roles of institutional quality and its threshold. Natural Resources Forum, 1-46.
  46. Osinubi, T., Ajide, F., & Fagbemi, F. (2023). The Moderating Role of Governance in the Globalisation -Life Expectancy Nexus: Implications for Socioeconomic Development. Economics and Culture, 20(2), 46-63.
  47. Osinubi, T., & Simatele, M. (2024). Exploring the Nexus between the Shadow Economy and Socioeconomic Conditions among Rural Informal Workers in South Africa. African Journal of Business & Economic Research, 19(4), 195-221.
  48. Pham, T. H. H. (2022). Shadow economy and poverty: what causes what? The Journal of Economic Inequality, 20(4), 861-891.
  49. Pesaran, M.H. (2004) General diagnostic tests for cross-section dependence in panels. Empirical Economics, 60(1), 13-50.
  50. Pesaran, M. H. (2007). A simple panel unit root test in the presence of cross-section dependence. Journal of Applied Econometrics, 22(2), 265–312.
  51. Pesaran, M. H., & Yamagata, T. (2008). Testing slope homogeneity in large panels. Journal of Econometrics, 142(1), 50-93.
  52. Pesaran, M. H., Ullah, A., & Yamagata, T. (2008). A bias-adjusted LM test of error cross-section independence. The Econometrics Journal, 11(1), 105–127.
  53. Persyn, D., &Westerlund, J. (2008). Error-correction–based cointegration tests for panel data. The Stata Journal, 8(2), 232–241.
  54. Seo, M.H., Kim, S., & Kim, Y. J. (2019). Estimation of dynamic panel threshold model using Stata. The Stata Journal, 19(3), 685–697.
  55. Seo, M. H., & Shin, Y. (2016). Dynamic panels with threshold effect and endogeneity. Journal of Econometrics, 195(2),169–186.
  56. Sahnoun, M., & Abdennadher, C. (2019). The nexus between unemployment rate and shadow economy: a comparative analysis of developed and developing countries using a simultaneous-equation model (No. 2019-30). Economics Discussion Papers.
  57. Sarsani, M. R. (2011). Socio-Economic Status and Performance on Creativity Tests. Encyclopedia of Creativity, 360–363.
  58. Shabbir, A., Kousar, S., Kousar, F., Adeel, A., & Jafar, R. A. (2019). Investigating the effect of governance on unemployment: a case of South Asian countries. International Journal of Management and Economics, 55(2), 160–181.
  59. Tang, C. F., Salman, A., & Abosedra, S. (2020). Dynamic interaction of tourism, finance, and institutions in explaining growth in Asia's little dragon economies. International Journal of Tourism Research, 22(1), 15–25.
  60. Ujunwa, A., Okoyeuzu, C., Nkwor, N., & Ujunwa, A. (2021). Potential impact of climate change and armed conflict on inequality in sub-Saharan Africa. South African Journal of Economics, 89(4), 480–498.
  61. UNDP (2022). Informal economy in Africa: Which way Forward? https://www.undp.org/africa/events/informal-economy-africa-which-way-forward (accessed on May 3, 2024).
  62. Widiastuti, T., Mawardi, I., Zulaikha, S., Herianingrum, S., Robani, A., al Mustofa, M. U., & Atiya, N. (2022). The nexus between Islamic social finance, quality of human resource, governance, and poverty. Heliyon, 8(12), 1-10.
  63. World Bank (2021). Social protection for the informal economy: Operational lessons for developing countries in Africa and Beyond. https://www.worldbank.org/en/region/afr/publication/social-protection-for-the-informal-economy-operational-lessons-for-developing-countries-in-africa-and-beyond (accessed on May 5, 2024)
  64. Xu, C., Han, M., Amegnonna, T., Dossou, M., & Bekun, F. V. (2021). Trade openness, FDI, and income inequality: Evidence from sub-Saharan Africa. African Development Review, 33(1), 193–203.
No Related Submission Found