The Dynamics of Parallel Economies. Measuring the Informal Sector in México

The existence of parallel economies that operate in the shadows of informality within most Latin American countries is widely recognized by the economic literature. However, its composition, size and effects on economic growth are still open questions. In this paper, we estimate the size and the evolution of the Mexican informal economy in the last three decades using a vector error correction model. In addition to the standard explanatory variables traditionally used in the currency demand approach, we include remittances given their relevance in the Mexican economic system. The results indicate that informality prior to the late 1980’s accounted for at least two thirds of GDP, while stabilizing around one third of GDP in the last decade. Furthermore, our estimates provide evidence of a positive long run relationship between informality and economic growth.Informal Sector; currency demand; VEC; Remittances

Remittances, Migration and Informality in Mexico. A Simple Model

In this paper, we analyse the possible channels through which informality, remittances and migration could interact and consequently affect growth in Mexico. In order to do so, we develop a simple endogenous growth model that allows for remittances and the coexistence of the formal and informal sector in the production function. In the literature, there is no agreement regarding the effects of the informal sector on economic growth. Moreover, thanks to globalization, migration and remittances have increased significantly their macroeconomic weight, renewing interest in studying the interactions that these variables might have, especially in developing countries like Mexico, where remittances are the third source of income after oil and tourism revenues. Our model shows that remittances play a crucial role on enhancing the Mexican resource constraint, while the possibility of migration in the informal sector drains the aggregate labor force. However, the magnitude of potential remittances may offset this loss, thus having an overall positive effect on economic growth.Growth; Informal Sector; Migration; Remittances

Modeling the Informal Economy in Mexico. A Structural Equation Approach

This paper uses annual data for the period 1970-2006 in order to estimate and investigate the evolution of the Mexican informal economy. In order to do so, we model the informal economy as a latent variable and try to explain it through relationships between possible cause and indicator variables using structural equation modeling (SEM). Our results indicate that the Mexican informal sector at the beginning of the 1970’s initially accounted for 40 percent of GDP while slightly decreasing to stabilize around 30percent of GDP in the late 1980’s until our days. The model uses tax burden, salary levels, inflation, unemployment and excessive regulation as potential incentives or deterrents for the informal economy. The results confirm in particular the importance of salaries and excessive regulation as causes of the informal economy in Mexico and confirm a positive relation between informality and GDP.Informal Economy; Economic Growth; Structural Equations

Modelling the Informal Economy in Mexico. A Structural Equation Approach

This paper uses annual data for the period 1970-2006 in order to estimate and investigate the evolution of the Mexican informal economy. In order to do so, we model the informal economy as a latent variable and try to explain it through relationships between possible cause and indicator variables using structural equation modeling (SEM). The model uses tax burden, salary levels, inflation, unemployment and excessive regulation as potential incentives or deterrents for the informal economy. Our results indicate that the Mexican informal sector at the beginning of the 1970’s accounted for 40 percent of GDP, and then it slightly decreased to stabilize around 30 percent of GDP from the late 1980’s onwards. The results also confirm the importance of salaries and excessive regulation as causes of the informal economy in Mexico and the existence of a positive relationship between informality and GDP.Informal Economy, Economic Growth, Structural Equations

The Dynamics of Parallel Economies. Measuring the Informal Sector in México

The existence of parallel economies that operate in the shadows of informality within most Latin American countries is widely recognized by the economic literature. However, its composition, size and effects on economic growth are still open questions. In this paper, we estimate the size and the evolution of the Mexican informal economy in the last three decades using a vector error correction model. In addition to the standard explanatory variables traditionally used in the currency demand approach, we include remittances given their relevance in the Mexican economic system. The results indicate that informality prior to the late 1980’s accounted for at least two thirds of GDP, while stabilizing around one third of GDP in the last decade. Furthermore, our estimates provide evidence of a positive long run relationship between informality and economic growth.Informal Sector, currency demand, VEC, Remittances

The Impact of Financial Crises on Trade Flows: A Developing Country Perspective

The global financial crisis has hit hard international trade that dropped below levels not seen since the Great Depression with disastrous consequences for the developing world. This paper estimates an extended gravity model of trade on a sample of 83 developing countries over the period 1990-2007 to shed light on how banking crises and global economic downturns affect bilateral exports flows from developing countries. In addition to traditional variables, we include a trade finance variable and foreign aid among the regressors. Differences between developing regions are taken into account. Our results show that (i) trade finance has a positive and significant impact on bilateral export flows in all developing regions except Latin America; (ii) foreign aid matters in all regions; (iii) global economic downturns exert a negative and significant impact on export flows in all developing countries, and especially in Latin American and Sub-Saharan African economies; (iv) banking crises appear to have no significant impact in most regions.Banking Crises, Developing Countries, Foreign Aid, Global Downturn, International Trade, Trade Finance, Mixed Effects Panel Data, Random Coefficients., Agricultural and Food Policy, C23, F11, F12, F34, F35, G01.,

The Dynamics of Parallel Economies. Measuring the Informal Sector in México

The existence of parallel economies that operate in the shadows of informality within most Latin American countries is widely recognized by the economic literature. However, its composition, size and effects on economic growth are still open questions. In this paper, we estimate the size and the evolution of the Mexican informal economy in the last three decades using a vector error correction model. In addition to the standard explanatory variables traditionally used in the currency demand approach, we include remittances given their relevance in the Mexican economic system. The results indicate that informality prior to the late 1980’s accounted for at least two thirds of GDP, while stabilizing around one third of GDP in the last decade. Furthermore, our estimates provide evidence of a positive long run relationship between informality and economic growth

The Dynamics of Parallel Economies. Measuring the Informal Sector in México

The existence of parallel economies that operate in the shadows of informality within most Latin American countries is widely recognized by the economic literature. However, its composition, size and effects on economic growth are still open questions. In this paper, we estimate the size and the evolution of the Mexican informal economy in the last three decades using a vector error correction model. In addition to the standard explanatory variables traditionally used in the currency demand approach, we include remittances given their relevance in the Mexican economic system. The results indicate that informality prior to the late 1980’s accounted for at least two thirds of GDP, while stabilizing around one third of GDP in the last decade. Furthermore, our estimates provide evidence of a positive long run relationship between informality and economic growth

Modeling the Informal Economy in Mexico. A Structural Equation Approach

This paper uses annual data for the period 1970-2006 in order to estimate and investigate the evolution of the Mexican informal economy. In order to do so, we model the informal economy as a latent variable and try to explain it through relationships between possible cause and indicator variables using structural equation modeling (SEM). Our results indicate that the Mexican informal sector at the beginning of the 1970’s initially accounted for 40 percent of GDP while slightly decreasing to stabilize around 30percent of GDP in the late 1980’s until our days. The model uses tax burden, salary levels, inflation, unemployment and excessive regulation as potential incentives or deterrents for the informal economy. The results confirm in particular the importance of salaries and excessive regulation as causes of the informal economy in Mexico and confirm a positive relation between informality and GDP

Remittances, Migration and Informality in Mexico. A Simple Model

In this paper, we analyse the possible channels through which informality, remittances and migration could interact and consequently affect growth in Mexico. In order to do so, we develop a simple endogenous growth model that allows for remittances and the coexistence of the formal and informal sector in the production function. In the literature, there is no agreement regarding the effects of the informal sector on economic growth. Moreover, thanks to globalization, migration and remittances have increased significantly their macroeconomic weight, renewing interest in studying the interactions that these variables might have, especially in developing countries like Mexico, where remittances are the third source of income after oil and tourism revenues. Our model shows that remittances play a crucial role on enhancing the Mexican resource constraint, while the possibility of migration in the informal sector drains the aggregate labor force. However, the magnitude of potential remittances may offset this loss, thus having an overall positive effect on economic growth