How does globalisation affect informality in sub‐Saharan African countries?

Abstract

AbstractThis paper examines the intricate informality‐globalisation nexus in the sub‐Saharan African context using 30 African countries. Using the Method of Moments Quantile Regression approach (MM‐QR), this study analyses the nexus using three measures of globalisation: overall, economic and trade globalisation. Furthermore, the mediating role of institutional quality is explored using five dimensions of institutional quality. The empirical results confirm a negative relationship across different measures of globalisation and different quantiles, signifying that increased globalisation tends to suppress informal economic activities. Moreover, the interactive models of globalisation and institutional quality also validate the negative relationship in the nexus. The investigation into the dimensions of institutional quality underscores their importance in shaping informality dynamics. The ‘law and order’ dimension demonstrates a notable role in reducing informality, emphasising the significance of robust legal frameworks and effective governance structures in fostering formal economic activities. Simultaneously, the adverse impact of corruption on informality highlights the need for concerted efforts to combat corruption for the sake of encouraging formalisation and economic development. By utilising the Method of Moments Quantile Regression method, this paper offers a nuanced perspective that considers variations across different segments of the informality distribution. This approach enhances our understanding of the heterogeneity in the effects of globalisation and institutions on informality within the African context. In conclusion, this paper advances the discourse on the informality‐globalisation nexus by incorporating the mediating influence of institutional quality. The findings underscore the multifaceted nature of the relationship and emphasise the need for holistic policy interventions that address both globalisation and institutional dimensions. By shedding light on the intricate web of factors impacting informality, this study provides a foundation for evidence‐based strategies aimed at sustainable economic development and inclusive growth across African nations.