Browsing by Author "Stephen, Esaku"

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Does income inequality increase the shadow economy? Empirical evidence from Uganda
(Development Studies Research, 2021) Stephen, Esaku
This paper applies the autoregressive distributed lag bounds testing method to investigate the long- and short-run relationship between the size of the shadow economy and income inequality in Uganda. The findings reveal evidence of the long and short-run relationship between the shadow economy and income inequality. We find that a rise in income inequality significantly increases the size of the shadow economy in Uganda, all else equal. These results are robust to the use of alternative econometric methods. At the policy level, instituting income redistribution policies to uplift the standard of the poor, improving resource allocation to productive sectors of the economy, reforming the tax system and macroeconomic environment, and implementing political and institutional reforms to address corruption could be viable policy options to address informality in Uganda.
Has the low level of economic growth spurred informal sector activities in Uganda? An empirical analysis
(African Journal of Economic and Management Studies, 2021-09) Stephen, Esaku
Purpose – In this paper, the authors examine how economic growth shapes the shadow economy in the long and short run. Design/methodology/approach – Using annual time series data from Uganda, drawn from various data sources, covering the period from 1991 to 2017, the authors apply the ARDL modeling approach to cointegration. Findings – This paper finds that an increase in economic growth significantly reduces the size of the shadow economy, in both the long and short run, all else equal. However, the long-run relationship between the shadow economy and growth is non-linear. The results suggest that the rise of the shadow economy could partially be attributed to the slow and sluggish rate of economic growth. Practical implications – These findings imply that addressing informality requires addressing underlying factors of underdevelopment since improvements in economic growth also translate into a reduction in the size of the shadow economy in the short and long run. Originality/value – These findings reveal that the low level of economic growth is an issue because it spurs informal sector activities in the short run. However, as the economy improves, it becomes an incentive for individuals to operate in the informal sector. Additionally, tackling shadow activities in the short run could help improve tax revenue collection.
Institutionalized democracy and the shadow economy in the short- and long-run: empirical analysis from Uganda
(Humanities and Social Sciences Communications, 2022) Stephen, Esaku
This paper investigates the relationship between institutionalized democracy and the shadow economy in both the long- and short-run. Using time series data from Uganda that cover the period from 1991 to 2015, this paper applies autoregressive distributed lag method to investigate this relationship. How democracy affects the shadow economy in less developed countries like Uganda is not well understood. This paper aims to fill the above knowledge gap. The findings show that the shadow economy and institutionalized democracy are negatively correlated in both the short- and long-run. This implies that improvement in institutionalized democracy significantly hinders the rise of shadow activities. This indicates that institutions regulate the conduct of economic agents and determine how entrepreneurs engage in eco- nomic activities. Moreover, institutions are crucial in resource allocation which in turn leads to welfare improvement. Improvement in welfare of citizens reduces their incentive to engage in informal sector activities since the formal sector provides the necessary support needed to operate legally. These findings are robust to alternative econometric methods. Two practical implications of these findings stand out. First, these findings indicate that reforming the governance system to facilitate efficient resource allocation could be one way of addressing widespread informality in developing economies. Second, these results also indicate that minimizing informality in the economy should gradually move away from emphasis on tackling proximate causes of informality to democratic reforms that change the authority patterns. In this case institutionalized democracy is another important channel of mitigating the rise of the shadow economy.
The long-and short-run relationship between the shadow economy and trade openness in Uganda
(Cogent Economics & Finance, 2021) Stephen, Esaku
This paper examines the relationship between the shadow economy and trade openness in Uganda, using autoregressive distributed lag bounds testing approach. We find that the shadow economy and trade openness have a long- and short-run relationship. These results hold even when alternative econometric methods are used. The empirical evidence indicates that more exposure to foreign trade sig- nificantly reduces the size of the shadow economy. This could imply that as countries become more integrated into the world economy, firms and individual entrepreneurs are induced to engage in the formal sector so as to reap the benefits of international markets. This paper shows that trade openness is an important determinant of the shadow economy in both the short- and long-run. At the policy level, any policy framework that strengthens integration into the global economy will be an effective tool that can reduce shadow activities in both the short- and long-run. The practical implication of these results is that countries that have fully reformed their economies to allow for free trade and investment inflows experience a decline in shadow activities implying that, in more open economies, more trade reduces informality.
The portrait of Uganda’s informal sector: What main obstacles do the sector face?
(Cogent Economics & Finance, 2020-10) Salmon, Mugoda; Stephen, Esaku; Rose, Kibuka Nakimu; Edward, Bbaale
In this paper, using primary data collected from business owners, we examine the nature and obstacles in the informal sector of Uganda. We find that education level matters in the selection of enterprises. The bulk of businesses, like eating kiosks, fish selling, shoe shining among others that require no specialized skill to operate were mainly run by primary school dropouts and those with no formal level of education. Furthermore, we find evidence of a strong entrepreneurial spirit among secondary school dropouts than at any other education level. Across all businesses surveyed, secondary school dropouts run a high number of informal enterprises. Evidence suggests that their motivation is driven by two key factors, namely, wanting to take advantage of an existing business opportunity and failure to find employment in the formal sector. The empirical results show that access to finance, crime, theft and disorder, electricity, water, taxes, burdensome inspections, and informal gifts are robust and significant obstacles to the operations of the informal sector in Uganda. Policies should focus on a regulatory framework that supports the sector to create secure livelihoods and generate employment opportunities for the unemployed rather than viewing the sector as a source of “illegality.” Improving access to finance, providing regular power and water supply, and improving the tax regime would mitigate the obstacles faced by informal businesses leading to possible formalization. Informal sector businesses should not be perceived as “illegal entities” but rather complementary effort by an increasingly enterprising population in the country.
The shadow economy and education in Uganda: Is there a long-run relationship?
(International Social Science Journal., 2023) Stephen, Esaku; Salmon, Mugoda
Using time series data from Uganda covering the period from 1991 to 2017, this paper applies auto regressive distributed lag bounds testing approach to examine the long- and short-run relationship between education and the shadow economy. We find evidence of the long-run relationship. The results indicate that an increase in both primary and secondary school enrolment significantly reduce the size of the shadow economy in the long run, all else equal. The above relationship is robust to alternative specification and estimation methods. We also uncover bidirectional causal relationship between education and the shadow economy. In the short run, increased school enrolment reduces the shadow economy but in an insignificant manner. At the policy level, the existence of a negative relationship between education and the shadow economy suggests that mitigating informality requires reforming education system to address issues of quality. Additionally, addressing informality may require improving the economic and financial environment so that the needs and obstacles faced by individuals and or businesses are handled. Furthermore, reforming the political and institutional environment may go a long way into mitigating the expansion of the shadow economy in Uganda and Africa in general.