ICT, Financial Inclusion and the Informal Economy: Evidence from Selected Latin American and Caribbean Countries

Abstract

ABSTRACTExploring effective tools to control the rampant expansion of the informal economy is critical to achieving the Sustainable Development Goals (SDGs). Based on balanced panel data for 19 selected Latin American and Caribbean countries for the period 2008–2017, this study employs fixed-effects estimation, limited information maximum likelihood estimation, and system generalized method of moments estimation to investigate the direct and indirect effects of information and communication technologies (ICT) diffusion on the size of the informal economy. The findings suggest that ICT diffusion can significantly reduce the size of the informal economy in LAC. Moreover, the dampening effect of ICT on the informal economy is more significant in countries with lower levels of financial inclusion. Accordingly, we recommend strengthening ICT sector development to enhance financial deepening and government efficiency and thus reduce informality in LAC.KEYWORDS: Financial inclusionICT diffusioninformal economyLatin America and the caribbeanJEL: C33E26O17O30 AcknowledgmentsThe authors thank the editors and anonymous reviewers for their helpful comments and suggestions. All remaining errors are ours.Disclosure StatementNo potential conflict of interest was reported by the author(s).Data StatementThe data that support the findings of this study are available from the corresponding author upon reasonable request.Notes1. https://www.heritage.org/index/.2. Since the coefficient of the variable FBB is not significant in column (1), only variables MOB and INTE are used as explanatory variables in the subsample regression.Additional informationFundingThis work was supported by a project of the Department of International Cooperation and Exchanges, Ministry of Education of the People’s Republic of China. Project Title:Research on High-Quality Development of Digital Economy Cooperation between China and Latin America in the Post-COVID-19 Era. Project [No. 2022-N49].