Informal Sector Size and Property Rights in Developing Countries : Does Corruption Matters?

The objective of this study is to investigate empirically the links between property rights and the size of the informal sector, taking into account the presence of corruption. To meet up with our objective, this paper made use of a data set of 112 countries from the ICRG, Medina, and Schneider (2018), and the WDI over the period 1991 to 2015. From our results, we find a negative correlation between property rights and informal sector development. However, this negative relationship becomes positive at a high level of corruption. The results are robust to the use of alternative methods. The policy implications of this research engage policy makers of the developing countries on the need to further-enhance their macroeconomic policies that fights against corruption. These include improvement in political governance, fiscal sustainability and the rules of law. This will help to improve the property rights and reduces the size of the informal sector. Policies, which are growth driven, are encouraged; this will lead to job creation and as a result, a reduction in the social vulnerability among these countries