Estimating The Size Of The Informal Sector In Latin America

Abstract

The informal sector has always been assumed to exist but was not studied
intently until the 1970s when economic events in the US and Europe led
scholars to consider just how much economic activity was occurring but not
being accounted for. Since that time it has been studied more vigorously but
very little progress has been made in understanding it.
In this paper I develop estimates of the size of the informal sector using
two different methods. First, a panel of estimates for several Latin American
countries will be constructed using the Multiple Indicators Multiple Causes
(MIMIC) method for several years. Next, I will create a time-series of estimates
for Chile using the Currency Demand (CD) method.
The MIMIC method was chosen because it allows a complete model of
informality to be employed as opposed to single-indicator methods such as
currency demand and physical input. This method has been employed in the
past by several researchers going back to Frey and Weck-Hannemann (1984)
and is well-documented (though also criticized) by Breusch (2005).
The CD method is used in the second part because it is well-documented,
theoretically sound and can be easily employed in a time-series setting. I
will generally follow procedures used by other authors, making modifications
where necessary or logical.

Date of Award	2011
Original language	American English
Awarding Institution	Eastern Illinois University
Supervisor	Mukti P Upadhyay (Supervisor)