Open Access Journal Article

Informality as a Driving Force for Corruption in Economy: A Neoclassical Simulation

by Emerson Abraham Jackson a,* orcid
a
Research Scholar, University of Birmingham and Bank of Sierra Leone, Freetown, Sierra Leone
*
Author to whom correspondence should be addressed.
EAL  2023, 26; 2(2), 26; https://doi.org/10.58567/eal02020008
Received: 11 March 2023 / Accepted: 25 May 2023 / Published Online: 30 May 2023
View Full-Text
Download PDF

Abstract

This paper examines the link between informality and corruption, two interlinked phenomena that have negative impacts on economic development. The paper presents a neoclassical model simulation that illustrates how informality can drive corruption in the economy, emphasizing the incentives for corruption in an economy with informal and formal sectors. The model provides insights into the mechanisms that promote corruption and how policymakers can reduce it through formalisation. The paper reviews the existing literature on informality and corruption, highlighting the empirical evidence and theoretical models that support the relationship between the two. The research finds that countries with larger informal sectors tend to have higher levels of corruption. The study contributes to the ongoing debate on how to reduce corruption and promote formalisation, which are crucial for sustainable economic growth.

Keywords: Informality; Corruption; Neoclassical Model; Economic Development; Policy Implication;
Copyright: © 2023 by Jackson. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

Share and Cite

ACS Style
Jackson, E. A. Informality as a Driving Force for Corruption in Economy: A Neoclassical Simulation. Economic Analysis Letters, 2023, 2, 26. https://doi.org/10.58567/eal02020008
AMA Style
Jackson E A. Informality as a Driving Force for Corruption in Economy: A Neoclassical Simulation. Economic Analysis Letters; 2023, 2(2):26. https://doi.org/10.58567/eal02020008
Chicago/Turabian Style
Jackson, Emerson A. 2023. "Informality as a Driving Force for Corruption in Economy: A Neoclassical Simulation" Economic Analysis Letters 2, no.2:26. https://doi.org/10.58567/eal02020008
APA style
Jackson, E. A. (2023). Informality as a Driving Force for Corruption in Economy: A Neoclassical Simulation. Economic Analysis Letters, 2(2), 26. https://doi.org/10.58567/eal02020008

Article Metrics

Article Access Statistics

References

  1. Banerjee, A., and Somanathan, R. (2007). The political economy of public goods: Some evidence from India. Journal of Development Economics, 82(2), 287-314. https://doi.org/10.1016/j.jdeveco.2006.04.005.
  2. Buehn, A., Schneider, F. (2012). Shadow economies around the world: novel insights, accepted knowledge, and new estimates. Int Tax Public Finance 19, 139–171. https://doi.org/10.1007/s10797-011-9187-7.
  3. De Soto, H. (1989). The Other Path: The Economic Answer to Terrorism.
  4. Dutta, N., Kar, S., & Roy, S. (2013). Corruption and Persistent Informality: An Empirical Investigation for India. International Review of Economics and Finance, 27, 357-373. https://doi.org/10.1016/j.iref.2012.11.001.
  5. Jackson, E.A. (2019). Informal Employment. In: Leal Filho W., Azul A., Brandli L., Özuyar P., Wall T. (eds) Decent Work and Economic Growth. Encyclopedia of the UN Sustainable Development Goals. Springer, Cham. https://doi.org/10.1007/978-3-319-71058-7_15-1
  6. Kaufmann, D., and Vicente, P. C. (2011). Legal corruption. Economics and Politics, 23(2), 195-219.
  7. McKenzie, D., and Sakho, Y. (2010). Does it pay firms to register for taxes? The impact of formality on firm profitability. Journal of Development Economics, 91(1), 15-24. https://doi.org/10.1016/j.jdeveco.2009.02.003.
  8. Mauro, P. (1995). Corruption and growth. The Quarterly Journal of Economics, 110(3), 681-712. https://doi.org/10.2307/2946696.
  9. Williams, C. C. (2015). The hidden enterprise culture: Entrepreneurship in the underground economy. Edward Elgar Publishing.
  10. Ngouhouo, I., Njoya, L., & Asongu, S. (2022). Corruption, economic growth and the informal sector: Empirical evidence from developing countries, AGDI Working Paper, No. WP/22/014, African Governance and Development Institute (AGDI), Yaoundé. http://hdl.handle.net/10419/262068.
  11. Uroos, A., Shabbir, A.S., Zahid, M.U., Yahya, G. & Abbasi, B.A. (2022). Economic analysis of corruption: evidence from Pakistan, Transnational Corporations Review, 14:1, 46-61. https://doi.org/10.1080/19186444.2021.1917331.