The effect of the informal economy on poverty: An econometric analysis

Informal economy and poverty are two phenomena with both economic and social effects in the entire world. Although the relationship between these two phenomena sometimes produces positive results, it usually leads to negative results. The main problematic of the present study was to examine and uncover the effects of the informal economy on poverty. For this purpose, panel data analysis was conducted with data that covered the years 1993-2018 in 134 countries. These 134 countries were analyzed in four groups according to their human development. Poverty (human development) was used as the dependent variable and the informal economy was used as the independent variable in the study. According to the causality tests, although causality was determined from the informal economy to poverty in each country group, a causality was detected from poverty to the informal economy in countries that had low and high human development. The findings of the present study imply that the informal economy has a negative effect on poverty. In this respect, when the informal economy increases by 1%, the poverty level also increases at different rates in different country groups.