The analysis of this study is based on the framework of discrimination theory of Becker (1957). In his opinion, Becker states that discrimination (e.g. against certain groups of customers) is cheaper when there is little competition between suppliers of goods or services for customers, but this possibility is competed away if the entry barriers for new firms are sufficiently low. In relation to micro-insurance, the discrimination against poor customers that cannot afford the traditional insurance policies is cheaper when there is little competition between insurers, but discriminating against potential customers of micro-insurance policies turns into a loss of business opportunities, if the entry barriers for new insurance firms is sufficiently low. Therefore, reforms in the insurance sector that intensify competition among insurance providers will reduce discrimination and expand both the micro-insurance coverage ratio and the economic security of the disadvantaged group, thereby reducing the size of informal economy. Hence these theories (this theory) predicts that an improvement in the institutional quality, in particular an increase in intensity of competition will lead to a better performing micro-insurance sector and help in the inclusion of more people into the mainstream economy (formal economy) and thereby reduce the size of the informal economy. With the countries of SSA being particularly burdened with low institutional quality, these benign effects can be assumed to be particularly strong here.
7.4 Data
This study investigates a panel data of 34 Sub-Saharan African countries over the period of 2000 to 2014 with data from multiple sources. The choice of the selected countries and the time frame for the study was mainly dictated by the availability of reliable data. The full description of the data is as follows: the dependent variable is the size of the informal economy obtained from Medina and
6FKQHLGHU 7KHVH DXWKRUV DSSOLHG WKH 0XOWLSOH ,QGLFDWRUV 0XOWLSOH &DXVHV
0,0,& PRGHOOLQJ DSSURDFK WR HVWLPDWH WKH VL]H RI WKH LQIRUPDO HFRQRP\
PHDVXUHG DV D SHUFHQWDJH RI *'3 7KH PRGHO LV D IRUP RI VWUXFWXUDO HTXDWLRQ
PRGHOOLQJ 6(0 EDVHGRQWKHVWDWLVWLFDOWKHRU\RIXQREVHUYHGYDULDEOHVGHYHORSHG
E\=HOOQHU DQG-RUHNRJDQG*ROGEHUJHU ,WLVDWKHRU\EDVHGDSSURDFK
WRFRQILUPWKHLQIOXHQFHRIDVHWRIH[RJHQRXVFDXVDOYDULDEOHVRQWKHODWHQWYDULDEOH
±LQIRUPDOHFRQRP\$VFDQEHREVHUYHGIURPILJXUHVDQGEHORZWKHVL]HRI
WKHLQIRUPDOHFRQRP\LQ$IULFDQFRXQWULHVLVVRODUJHWKDWWKHORZHVWVL]H 0DXULWLXV
LVODUJHUWKDQWKHDYHUDJHVL]HLQ(XURSH
)LJXUH 6L]HRILQIRUPDOHFRQRP\LQ$IULFD LQSHUFHQWRI*'3 6RXUFH $XWKRU¶VFRPSXWDWLRQXVLQJ6WDWD
$PRQJVWWKHFRXQWULHVZLWKWKHODUJHVWVKDUHRIWKHLQIRUPDOVHFWRULV1LJHULD
ZKRVHWUDQVODWHVWRPRUHWKDQ%LOOLRQ86GROODUVLQ*'3$WWKHOHYHORI
WKH YDULRXV UHJLRQV LQ $IULFD :HVW &HQWUDO 6RXWK (DVW 1RUWK VHH ILJXUH
WKRXJKWKHVL]HVRIWKHLQIRUPDOHFRQRP\DUHDOPRVWWKHVDPH EHWZHHQ WR
+RZHYHU LW PXVW EH SRLQWHG RXW WKDW WKLV PD\ FKDQJH IRU WKH VRXWKHUQ DQG WKH
QRUWKHUQUHJLRQLIWKHFRXQWULHVWKDWDUHRPLWWHGKHUH GXHWRODFNRIGDWD DUHDGGHG
WRWKHFDOFXODWLRQ
)LJXUH 6L]HRILQIRUPDOHFRQRP\LQ$IULFD LQSHUFHQWRI*'3 6RXUFH $XWKRU¶VFRPSXWDWLRQXVLQJ6WDWD
)RUWKHLQGHSHQGHQWYDULDEOHVZHKDYHDGRSWHGWKHPLFURLQVXUDQFHFRYHUDJH
UDWLRGHILQHGE\WKH0LFURLQVXUDQFH1HWZRUN´DVRQHRIWKHLQGLFDWRUVIRUWKH
GHYHORSPHQW RI PLFURLQVXUDQFH LQGXVWU\ ,W LV WKH SURSRUWLRQ RI WKH WDUJHW
SRSXODWLRQIRUPLFURLQVXUDQFHSROLFLHVWKDWDFWXDOO\SDUWLFLSDWHLQYDULRXVIRUPVRI
PLFURLQVXUDQFHSROLFLHV :LSIDQG*DUDQG $VFDQEHREVHUYHGIURPILJXUH
WKHUDWLRRIPLFURLQVXUDQFHFRYHUDJHLQ$IULFDZKLFKDVRILVLV
YHU\ORZ,WZRXOGHYHQEHLQWHUHVWLQJWRVHHZKDWKDSSHQVWRWKLVDYHUDJHVL]HLIWKH
ILJXUHVIURP6RXWK$IULFDZKLFKLVDVKLJKDVZDVRPLWWHG WKHPDMRULW\RIWKH
UHPDLQLQJFRXQWULHVDQGVPDOOHU LQWHUPVRI*'3 DUHVWUXJJOLQJWRHYHQJHWWR
SHUFHQW ,Q SDUWLFXODU WKH SHUFHQWDJH RI SHRSOH FRYHUHG E\ DQ\ IRUP RI PLFUR
LQVXUDQFH LQ 1LJHULD DV RI LV DQG SUHVHQWO\ VWDQGV DW
0LFURLQVXUDQFH1HWZRUN
)LJXUH7RWDOPLFURLQVXUDQFHFRYHUDJHUDWLRIRU$IULFD
6RXUFH 'DWDIURP0LFURLQVXUDQFH1HWZRUNZHEVLWHPLPHR
7KHVHFRQGLQGHSHQGHQWYDULDEOHLVLQVWLWXWLRQDOTXDOLW\ LT 7KHRYHUDOOOHYHO
RILQVWLWXWLRQDOTXDOLW\LVUHFNRQHGWRDIIHFWWKHVL]HRIWKHLQIRUPDOHFRQRP\ 'UHKHU
DQG6FKQHLGHU )ULHGPDQHWDO )RULQVWDQFHLWLVH[SHFWHGWKDWDEHWWHU
UXOHRIODZV\VWHPHIILFLHQF\DQGJRYHUQPHQWTXDOLW\FDQUDLVHWKHWD[WROHUDWLRQ
DQG ZLOOLQJQHVV RI LQGLYLGXDOVILUPV WR VWD\ IRUPDO DQG QRW HYDGH WD[HV WKHVH
LQVWLWXWLRQV DUH DOVR SUHGLFWHG WR LQFUHDVH WKH QXPEHU RI SHRSOH ZLOOLQJ WR WUXVW
LQVXUDQFHHQWHUSULVHZLWKWKHLUPRQH\2QWKHRWKHUKDQGDZHDNMXGLFLDU\V\VWHP
H[FHVVLYHEXUHDXFUDF\ODFNRIWUDQVSDUHQF\DQGJRYHUQPHQWVXSSRUWWRVPDOOVFDOH
EXVLQHVVHVFDQH[DFHUEDWHWKHLQFHQWLYHVWRRSHUDWHLQLQIRUPDOLW\,QOLQHZLWKWKH
PDQ\ VWXGLHV RI LQVWLWXWLRQDO LPSDFWV RQ WKH VL]H RI LQIRUPDO HFRQRPLHV VXFK DV
-RKQVRQHWDO )ULHGPDQHWDO .UDNRZVN\ 'UHKHUDQG6FKQHLGHU
/RD\]D HW DO $GHOH\H HW DO DQG 1MDQJDQJ WKLV VWXG\
DGRSWVWKHVL[:RUOG%DQN¶VJRRGJRYHUQDQFHLQGLFDWRUVIURP WRDVD
PHDVXUHRILQVWLWXWLRQDOTXDOLW\7KHLQGLFDWRUVDUHGHILQHGEHWZHHQIRUJRRG
TXDOLW\DQGIRUEDGTXDOLW\7KHLQGLFDWRUVXVHGKHUHLQFOXGH
L &RQWURO RI &RUUXSWLRQ &2& 7KLV VXEFRPSRQHQW RI JRRG JRYHUQDQFH
LQGLFDWRUVFDSWXUHVSHUFHSWLRQVRIWKHH[WHQWWRZKLFKSXEOLFSRZHULVH[HUFLVHGIRU
SULYDWHJDLQLQFOXGLQJERWKSHWW\DQGJUDQGIRUPVRIFRUUXSWLRQ,WDOVRVKRZVWR
190
what extent the state is controlled by the few elites at the expense of the poor majority in an economy.
(ii) Rule of Law (ROL): It captures perceptions of the extent to which agents have confidence in and abide by the rules of society. In particular, it emphasizes the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence.
(iii) Regulatory Quality (RQ): Captures perceptions of the ability of the government to formulate and implement sound policies and regulations that permit and promote both private sector development and other forms of business in an economy.
(iv) Government Effectiveness (GE): This sub-component captures perceptions of the quality of public services, the quality of the civil service and the degree of its independence from political pressures. It also captures the quality of policy formulation/implementation and the credibility of the government's commitment to such policies.
(v) Voice and accountability (VA): It measures the extent to which citizens in a country can take part in political processes and hence their willingness to support their leaders through the payment of tax as well as other levies from which the system is sustained.
(vi) Political stability (PA): This sub-component combines indicators about perceptions of the likelihood that existing governments will be overthrown by unconstitutional or violent means.
)LJXUH 3ORWRIVL]HVRILQIRUPDOHFRQRPLHVDJDLQVWWKHTXDOLWLHVRILQVWLWXWLRQV LQWKH6XE6DKDUDQFRXQWULHV
6RXUFH $XWKRU¶VFRPSXWDWLRQXVLQJ:RUOG%DQNGDWD 6WDWD
$VFDQEHREVHUYHGIURPILJXUHRQDYHUDJHDOOWKHFRXQWULHVLQWKHVWXG\IDOO
EHORZWKHUDQNRI ZLWKLQWKHWREUDFNHWRIWKHLQGLFDWRUV ,QIDFWRQO\
RIWKHFRXQWULHVLQRXUVWXG\UHDFKHGWKHPLGSRLQWRIDOORWKHUVIDOOLQWRWKH
DUHDRIEDGLQVWLWXWLRQDOTXDOLW\7KHVLPSOHUHJUHVVLRQOLQH UHGVORSHIURPJRRG
TXDOLW\LQVWLWXWLRQVWRSOHIW WRKLJKVKDUHVRIWKHLQIRUPDOVHFWRUERWWRPULJKW DOVR VXSSRUWV RXU DVVXPSWLRQ WKDW KLJK LQVWLWXWLRQDO TXDOLW\ ZLOO KDYH D QHJDWLYH
HIIHFWRQWKHVL]HRIWKHLQIRUPDOHFRQRP\)RULQVWDQFH0DXULWLXVZKLFKKDVWKH
VPDOOHVW VL]H RI WKH LQIRUPDO HFRQRP\ DOVR HQMR\V WKH EHVW LQVWLWXWLRQDO UDQNLQJ
DPRQJWKHFRXQWULHVXQGHULQYHVWLJDWLRQ2QWKHRWKHUKDQG1LJHULDZLWKDQDYHUDJH
LQVWLWXWLRQDOUDQNRILVWKHVHFRQGKLJKHVWLQWHUPVRIWKHVL]HRIWKHLQIRUPDO
HFRQRP\
)XUWKHUZHLQFOXGHGWZRDGGLWLRQDOYDULDEOHVWKDWDUHRIWHQFRQVLGHUHGLQWKH
UHOHYDQWOLWHUDWXUHDVFRQWUROYDULDEOHVLQDQDO\VHVRIWKHVL]HRILQIRUPDOHFRQRP\
7KH\LQFOXGHSRSXODWLRQJURZWKDQGODERXUIRUFHSDUWLFLSDWLRQUDWH
3RSXODWLRQ JURZWK 7KH UHODWLRQVKLS EHWZHHQ WKH SRSXODWLRQ JURZWK DQG WKH
LQIRUPDOHFRQRP\LVHVWDEOLVKHGWKURXJKWKHVL]HRIXQHPSOR\PHQWLQDQHFRQRP\
,Q FRXQWULHV ZLWK DOUHDG\ KLJK XQHPSOR\PHQW UDWHV DQG PLVVLQJ RU LQVXIILFLHQW
XQHPSOR\PHQW EHQHILWV DV LV WKH FDVH LQ PRVW $IULFDQ FRXQWULHV JURZWK LQ
SRSXODWLRQ LV H[SHFWHG WR LQFUHDVH WKH XQHPSOR\PHQW UDWH DV ZHOO DV WKH UDWLR
EHWZHHQWKRVHZKRGRQRWKDYHHPSOR\PHQWDQGKHQFHGHSHQGRQWKRVHZKRGR
+HQFHDVORQJDVJURZWKLQSRSXODWLRQLVQRWPDWFKHGE\HPSOR\PHQWJURZWK WKH
VRFDOOHGMREJHQHUDWLQJJURZWK PRUHSHRSOHZLOOUHVRUWWRWKHLQIRUPDOHFRQRP\
DVDSODWIRUPIURPZKLFKWKH\VHHNIRUVXUYLYDO
)LJXUH 3ORWRIVL]HVRILQIRUPDOHFRQRPLHVDJDLQVWSRSXODWLRQVL]H $IULFD 6RXUFH $XWKRU¶VFRPSXWDWLRQXVLQJ:RUOG%DQNGDWD 6WDWD
)RULQVWDQFH1LJHULDZLWKDSRSXODWLRQRIRYHUPLOOLRQSHRSOHDQGDKLJK
UDWH RI XQHPSOR\PHQW VKDUH RI SHRSOH DW ZRUNLQJ DJH WKDW DUH QRW HPSOR\HG RI
DURXQGSHUFHQWLQ VHH,/2HVWLPDWLRQV LVOLNHO\WRH[SHULHQFHDQLQFUHDVH
LQWKHLQIRUPDOHFRQRP\ZLWKIXUWKHUSRSXODWLRQJURZWK VHHILJXUH
193
Labour force participation rates: Many authors such as Contini (1981) have linked the size of the informal economy to the rate of labour force participation7. Just like the population growth, it is expected that the more people are willing to be economically active without however sufficient employment opportunities, the more likely the size of the informal economy will grow. It is also important to point out the possibility of reverse causation given that a decline in the rate of labour force participation may result in a movement of the workforce vice versa. However, the fitted slope of the below figure #6 suggests that, on the average, the rate of labour participation has a positive correlation with the size of the informal economy for most of the 34 countries under investigation.
Figure#7.6: Plot of sizes of informal economies against labour force participation rate in the SSA
Source: Author’s computation using World Bank data (Stata 14)
7 It is the sum of all persons in working age who furnish the supply of labour for the production of goods and services devided by the sum of all people in working age.