Investigating the effect of trust in institutions on the decision of young people in selected MENA countries to opt for an informal economic activity: Algeria, Egypt, Lebanon, Morocco and Tunisia

Abstract

Several empirical studies have analysed the determinants of being in the informal sector. Most of these studies have focused on the effect of demographic and socio-economic factors such as level of education, regions of residence, skills acquired and gender and household characteristics such as parents’ education level. Other authors have found that institutional factors, such as corruption, regulations, legislation and tax burden can influence the decisions to undertake activities in the informal sector. More recent studies have also highlighted the effect of institutional trust (considered as informal institution) on the emergence of informality. This article attempts to explain the behaviour that motivates individuals to engage in the informal sector. It presents an empirical analysis of the determinants of being in informality for youth in the selected MENA countries (Algeria, Egypt, Lebanon, Morocco and Tunisia) focusing on the effect of institutional trust. Our results confirm that the general level of young people’s trust in the different institutions is low. Furthermore, we note that youth’s trusts in institutions have a significant effect on the likelihood of being in informality. However, it seems to differ according to which institutions are considered and by which countries.