4D.7 Regression: Changes in informality and poverty reduction

TABLE 4D.7 Regression: Changes in informality and poverty reduction

Poverty at $1.90 per day Output informality Employment informality

World (1) World (2) EMDEs (1) EMDEs (2) World (1) World (2) EMDEs (1)

EMDEs (2)

Lagged poverty -0.73* -0.73* -0.76* -0.75* -0.42* -0.42* -0.44* -0.44* (0.07) (0.07) (0.07) (0.07) (0.09) (0.09) (0.11) (0.11)

Change in informality

0.72** 0.69* 0.63 0.60** 0.10 0.08 0.112 0.004

(0.38) (0.33) (0.40) (0.36) (0.06) (0.08) (0.08) (0.07)

x lagged poverty 0.001 0.001 0.001 0.01

(0.02) (0.01) (0.03) (0.008) Lagged informality 2.53* 2.53* 2.61* 2.62* -0.09 -0.11 -0.34 -0.47 (0.82) (0.84) (0.88) (0.91) (0.23) (0.25) (0.40) (0.38) Squared lagged -0.016** -0.016** -0.017* -0.017* 0.001 0.001 0.004 0.005 informality (0.008) (0.008) (0.008) (0.009) (0.003) (0.003) (0.005) (0.005) GDP growth -0.08* -0.08* -0.07 -0.07 -0.04 -0.04 -0.02 -0.02 (0.04) (0.04) (0.05) (0.05) (0.03) (0.03) (0.04) (0.04) R-squared 0.66 0.66 0.69 0.69 0.65 0.65 0.74 0.75 Observations 366 366 262 262 266 266 164 164 Number of countries 117 117 85 85 92 92 60 60

Poverty at $3.20 per day Output informality Employment informality

World (1) World (2) EMDEs (1) EMDEs (2) World (1) World (2) EMDEs (1)

EMDEs (2)

Lagged poverty -0.59* -0.59* -0.65* -0.65* -0.42* -0.41* -0.46* -0.49* (0.07) (0.07) (0.08) (0.08) (0.1) (0.1) (0.13) (0.135

Change in informality

1.87* 1.87* 1.74** 1.74** -0.23 0.20** -0.57* 0.18

(0.58) (0.58) (0.60) (0.60) (0.19) (0.10) (0.26) (0.13)

x lagged poverty -0.02** -0.02* 0.014* 0.03*

(0.01) (0.01) (0.006) (0.009) Lagged informality 2.88* 2.88* 2.88* 2.88* -0.88** -0.49 -1.53* -0.98 (0.98) (0.98) (1.04) (1.04) (0.45) (0.42) (0.65) (0.67) Squared lagged -0.026* -0.026* -0.03* -0.03* 0.01* 0.005 0.017* 0.011 informality (0.01) (0.01) (0.01) (0.01) (0.005) (0.005) (0.008) (0.007) GDP growth -0.15* -0.15* -0.12* -0.12* -0.14* -0.14* -0.15* -0.17* (0.04) (0.04) (0.05) (0.05) (0.05) (0.05) (0.06) (0.07) R-squared 0.59 0.59 0.64 0.64 0.64 0.61 0.72 0.68 Observations 366 366 262 262 266 266 164 164 Number of countries 117 117 85 85 92 92 60 60

Source: World Bank. Note: The sample of country-year observations starts with the first available observation for each country and all consecutive observations with at least five-year minimum window between them. Sample excludes fragile and conflict states. “Employment informality” is self-employment in percent of total employment. “Output informality” is proxied by DGE-based estimates on informal output in percent of official GDP. Dependent variables are changes in poverty rates at $1.90 and $3.20 per day. “GDP growth” denotes cumulative change in GDP per capita during the time window between observations. “Change in informality” denotes change in output (employment) informality during the time window between observations in percent of official GDP (in percent of official employment). “Lagged informality” denotes informality levels at t-1. Control variables include a constant, country and time fixed effects, and squared lagged informality to control for a possible nonlinear relationship between informality and poverty. A positive coefficient on change in informality indicates that formalization reduces poverty. DGE = dynamic general equilibrium model; EMDEs = emerging market and developing economies. Robust standard errors in parentheses; *p<0.05, ** p<0.1.