DETERMINANTS OF INFORMAL ECONOMY ESTIMATION IN ETHIOPIA: MULTIPLE-INDICATORS, MULTIPLE-CAUSES (MIMIC) APPROACH

Abstract

This paper explored the determinants of the informal economy size estimations with survey data in the multiple indicators, multiple causes (MIMIC) model. This model enables us to estimate the unknown variable with the known observable variables. The size of the informal economy estimated with observable variables and to conduct the estimation with this model grouped the observable variables of the study as causes and indicators. In the underlying study, the size of informal economy estimations the variables such as harmfulness of shadow economy, growth of money outside banks, taxes burden, the intensity of government regulations, self-employment, unemployment rate, and agricultural sector dominance have the positive effects whereas the real GDP per capita, total employment, institutional quality, and tax morality have negative effects in the estimation of the informal economy size. The study recommended a future line of studies for scholars to undertake the study on the size of the informal economy estimations with the indirect approach using panel data to know the impacts on the regular economy and other related consequences on the economy.