Impact of institutional quality on informal economy in Vietnam

Abstract

The informal economy has been a crucial subject of discussion in socio-economic policies. The purpose of this study is to investigate the effect of institutional quality on the size of the informal economy in Vietnam. Using annual time series data, drawn from various data sources, covering the period from 2000 to 2018, the authors apply the ARDL modeling approach to cointegration. This paper finds that there exists a long-term cointegration between the variables and an increase in institutional quality significantly reduces the size of the informal economy. Based on the results, policy implications are proposed to improve the quality of institutions which in turn, decreases the size of an informal economy.