The impact of the informal economy on R&D, wage inequality and economic growth

ABSTRACT

We extend the existing research and development (R&D) growth literature by focusing on the short–medium–long run effects of the informal sector on R&D intensity, wage inequality and economic growth, and by considering 18 OECD countries between 1990 and 2008. We show that: the steady state is unique and stable; the share of informal economy (IE) in production affects negatively R&D intensity and wage equality; Nordic countries have the lowest share of IE in production, while Mediterranean countries have the highest share of IE, wage inequality and R&D intensity but R&D spillovers are lower.

KEYWORDS:

• R&D
• informal economy
• wage inequality
• endogenous growth

JEL CLASSIFICATION:

• O30
• O41
• E26
• J30

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ That is, between the starting year of available OECD data and the year when, for the most cases, the financial and economic crisis started.

² Average wage in the OE in current prices and in national currency units.