Pages: 1-5

Abstract

ABSTRACT: This paper analyses how corruption, affect the formal economy and informal economy, using an Asian country data. The literature strongly emphasizes the quantifiable importance of these factors to understand the changes of informal economy. However, the limited number of researches uses cross-sectional country data with a relatively few number of observations, and hardly any paper has investigated corruption and provides evidence using within country data. We use 30 proxies that measure government indices and political behavior. Research result shows increase in governance indices leads to a smaller informal economy. Furthermore, an increase in government stability increases the size of the informal economy.