Informality and Economic Growth in Nigeria: 1980-2014

Mohammed Yelwa,A J Adam

doi:10.22158/jepf.v3n3p405

Abstract

<p><em>The paper examines the impact of informal sector activities on economic growth in Nigeria between 1980-2014. The contributions of informal sector activities to the growth of Nigerian economy cannot be over emphasized. It is the source of livelihood to the majority of poor, unskilled, socially marginalized and female population and is the vital means of survival for the people in the country lacking proper safety nets and unemployment insurance especially those lacking skills from formal sector jobs. The relationship between informality and economic growth is not clear because the sector is not regulated by the law also there is no concrete evidence that this sector enhances growth because the sector’s contributions to growth is not measured. The use of endogenous growth model becomes relevant in this study. The theory emphasizes the role of production on the long-run via a higher rate of technological innovation. The variables that were tested are official economy nominal GDP, informal economy nominal GDP, currency in circulation, demand deposit, ratio of currency in circulation to demand deposit, narrow money, informal economy as percentage of official economy. ADF test was conducted to establish that the data series of all variables are stationary t levels. Having established the stationarity test we also, conducted causality test of the response of official economy nominal GDP to informal economy nominal GDP. In conclusion, the impact of informal sector economy on economic growth in Nigeria is quiet commendable. Even though, the relationship between informality and economic growth is not straight. The paper recommended thus, the need for the government to integrate the activities of the informal economy into formal sector and size of the sector is measured and regulated because their roles are commendable. As it will improve tax collection and enhance fiscal policy.</em></p>

Highlights

IntroductionThe benefit of the informal sector activities in supporting livelihoods and contributing to consumption and production in developing countries in areas of job creation and employment generation is quite www.scholink.org/ojs/index.php/jepf
The benefit of the informal sector activities in supporting livelihoods and contributing to consumption and production in developing countries in areas of job creation and employment generation is quite www.scholink.org/ojs/index.php/jepfJournal of Economics and Public FinanceVol 3, No 3, 2017 commendable and widely evident
The paper recommended the need for the government to integrate the activities of the informal economy into formal sector and size of the sector is measured and regulated because their roles are commendable

Summary

Introduction

The benefit of the informal sector activities in supporting livelihoods and contributing to consumption and production in developing countries in areas of job creation and employment generation is quite www.scholink.org/ojs/index.php/jepf. The expansion of the informal economic over several years and the reduction in employment situation in many developing countries has believed to be associated with low GDP growth rates (ILO, 2004). In Nigeria the role of informal economy activities is quite commendable even though, there are bottlenecks in terms of size and measurement, but informal wage employment or sub-contracted self-employment has shown clear supportive evidence to economic growth by reducing the cost of labour and improving competitiveness; since large number of this category are unskilled they serve as a raw materials in a formal industrial sector, but keeping unskilled workers in a “formal” industrial sector for a long-term period will lead to low levels of productivity and dismal earnings and this will put the growth in to a standstill. This paper proposes operational definition of the informal sector activities and provides a relationship between informality and economic growth in Nigeria using some macroeconomic variables

Methodology and Theoretical Framework

Model Specification

Findings

Conclusion and Recommendations