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Hassan and Schneider (2016a) noted that the informal economy promotes: resource distortion; underutilisation; and bias in official data like the unemployment rate and GDP statistics. Results suggest that informal economy in Sub-Saharan Africa remains among the largest in the world, although this share has been very gradually declining. It says the informal sector contributed between 25% and 65% of GDP with Mauritius and South Africa at the low-end under 25% and Tanzania (over 50%) and Nigeria (over 60%) at the other end. The size of the informal economy of Nigeria as at 2018 is 67% of the GDP. However, a recent study by Chatham House Royal Institute of International Affairs indicated that the Nigerian informal sector constitutes … While the MIMIC approach arguably remains the most favoured among the indirect approaches adopted in literature, these two studies from Nigeria suffer from possible heteroscedasticity resulting from the estimation techniques adopted. The informal sector thus, constitutes the final destination of an ever increasing number of job seekers. NIGERIA: Informal Trade With Neighboring Countries Introduction Several studies have shown that informal cross border trade (ICBT) across custom frontiers is thriving globally, especially in Africa. The multiple indicator-multiple cause (MIMIC) method is a well-established tool for measuring informal economic activity. (2020). The informal economy by contrast has grown faster in size at an annual average rate of about 8.5% between 2015 and 2017.2 Growing Nigeria’s informal economy would require skills development, cheaper credit accessibility and improved power supply. It also finds significant heterogeneity, with informality ranging from a low of 20 to 25 percent in Mauritius, South Africa and Namibia to a high of 50 to 65 percent in Benin, Tanzania and Nigeria. Courses and trainings. This argument has prompted several countries to put a searchlight on the size and performance of their informal economy. Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The size and role of the informal sector in the economy increase during economic recessions and periods of economic adjustment and transition (2). However, it does appear that the SME sector in Nigeria has not come into that glorious position where we can say, unequivocally, that it has become the engine of growth of our economy. The informal sector is generally regarded as the part of a nation’s economy that is not taxed nor regulated by government. The informal sector was historically recognized as an opposition to formal economy, meaning it included all income earning activities beyond legally regulated enterprises. International Monetary Fund IMF has said that informal activities in Nigeria account for about 65 per cent. This is an article written by Tonuchi et al (2020). The economy of Nigeria is a middle-income, mixed economy and emerging market, with expanding manufacturing, financial, service, communications, technology and entertainment sectors. The IMFblog chat entitled: The Potential for Growth and Africa’s informal Economy, indicates that by 2035, sub-Saharan Africa will have more working-age people than the rest of the world’s regions combined with pressure on governments to provide jobs for them, adding that the size of Nigeria’s informal economy stands at 65 percent of GDP. To address this issue, this paper applies for the first time the light intensity approach (instead of GDP). Nigeria’s GDP as at the end of 2015 was about N94.1 trillion out of which N38.7 trillion is from the informal and another N55.3 trillion formal. Measuring informality: a statistical manual on the informal sector and informal employment; Women and men in the informal economy: a statistical picture (3rd edition) This publication provides for the 1st time comparable estimates on the size of the informal economy & a statistical profile of informality in all its diversity at the global and regional levels. According to Magbagbeola (1996), the informal sector in Nigeria refers to economic activities in all sectors of the economy that are operated outside the purview of government regulation. Nigeria must design and roll out measures to support targeted groups and individuals in this sector. The smaller the size of the informal sector the richer the economy. They have been peer reviewed but have not been subject to a formal external peer review via IFPRI’s Publications Review Committee. The IMF Press Center is a password-protected site for working journalists. THE EFFECT OF FISCAL POLICY ON THE SIZE OF THE INFORMAL SECTOR IN NIGERIA This study aims to innovatively estimate the size of the informal economy of Nigeria using the MIMIC Model and the amount of tax revenue the government loses yearly to the growth in the informal economy. The size of the informal economy of Nigeria as at 2018 is 67% of the GDP. Both studies also neglect the role of institutions in estimating the size of the informal economy. We use cookies to ensure that we give you the best experience on our website. Over the past years, scholars have debated on whether the informal sector should really be seen as a marginalized sector, which mops up excess or entrenched workers or as a vibrant, entrepreneurial part of the Nigeria economy which can ) made considerable effort to address the issue of heteroscedasticity and institution using panel data from 157 countries is! Accordingly, regulation burden, unemployment, and institutions are the key drivers informality! 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