Impacts of globalization on the informal sector: Empirical evidence from developing countries

A number of theoretical studies have traced the impacts of globalization (mostly characterized by trade integration) on informality, while relevant empirical literature has not been well developed. This paper aims to fill this knowledge gap by shedding further light on the impacts of different globalization dimensions (both economic and non-economic) on informality in developing countries. Employing a new Bayesian Model Averaging technique, which allows panel regression with fixed effects and endogenous regressors, we find that the indicators significantly affecting informality are trade integration, trade diversification and concentration, de facto and de jure financial openness, and social globalization. By contrast, many covariates found significant by previous empirical studies do not seem to be robust to being included in informality modelling.