By Anil Duman

Informal activities are highly persistent in developing countries, and their economic effects are widely studied in the literature. Yet, political consequences of informality are relatively an understudied topic and big chunk of the existing work does not offer systematic examination of how informal sector participation shape preferences and attitudes. Our paper contributes to the literature by focusing on Arab countries that have very stable and large size of informal sectors in the world. Additionally, we take into account the endogeneity between informal employment and citizens’ perceptions about corruption, trust and government’s performance by adopting an IV estimation strategy. We argue that working in the informal sector has a negative impact on how individuals view government’s performance even after controlling for a battery of socio-economic characteristics. Our findings reveal that both narrow and broader definition of informal employment in the MENA region is significantly increasing the likelihood of adverse perceptions. Individuals in the informal sector are more skeptical about government’s performance in job creation and redistribution. Also, their level of trust for political actors are lower and they declare greater levels of corruption. Moreover, we demonstrated that the impact is not conditional on incomes and even respondents belonging to high income households in the MENA region evaluate the government more negatively if they are in the informal sector. Our results are robust to sampling, recoding variables, and model selection.

Source: SSRN