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<p>Political stability (PS) is a cornerstone of economic development, yet the role of the informal economy (IE) in shaping it remains underexplored. This study addresses this gap by examining how informal and formal economies influence PS across 124 countries from 1996 to 2020, with particular attention to income-group heterogeneity. Using the method of moments quantile regression (MMQR) alongside advanced econometric techniques, the study finds that IE systematically undermines PS while the Formal-sector macroeconomic performance (FMP) enhances PS that varies meaningfully in magnitude and direction across the PS distribution and income groups. Regulatory quality (RQ) as a moderating factor significantly mitigates the negative consequence of IE on PS. The study further identifies the heterogeneous effect of IE on PS across different country groups. On the other hand, formal-sector macroeconomic performance (FMP) and RQ substantially contribute to improving PS at the global context. However, the impact of FMP and RQ on PS varies across country groups. These findings contribute a novel distributional perspective to the literature on economic structure and governance and carry direct policy implications: reducing informal activity and strengthening institutional frameworks are not interchangeable strategies but context-dependent issue whose effectiveness depends critically on a country's development stage and baseline stability level.</p>

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Does the informal economy undermine political stability? Empirical evidence from global perspectives

  • 期刊论文

  • 发表日期：

    2026年6月30日

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  • Muhammad Salah Uddin,
  • Mohammad Ismayl Al Masud,
  • Md Roknuzzaman,
  • Mohammad Ahsan Habib,
  • Md. Al Amin

摘要

Political stability (PS) is a cornerstone of economic development, yet the role of the informal economy (IE) in shaping it remains underexplored. This study addresses this gap by examining how informal and formal economies influence PS across 124 countries from 1996 to 2020, with particular attention to income-group heterogeneity. Using the method of moments quantile regression (MMQR) alongside advanced econometric techniques, the study finds that IE systematically undermines PS while the Formal-sector macroeconomic performance (FMP) enhances PS that varies meaningfully in magnitude and direction across the PS distribution and income groups. Regulatory quality (RQ) as a moderating factor significantly mitigates the negative consequence of IE on PS. The study further identifies the heterogeneous effect of IE on PS across different country groups. On the other hand, formal-sector macroeconomic performance (FMP) and RQ substantially contribute to improving PS at the global context. However, the impact of FMP and RQ on PS varies across country groups. These findings contribute a novel distributional perspective to the literature on economic structure and governance and carry direct policy implications: reducing informal activity and strengthening institutional frameworks are not interchangeable strategies but context-dependent issue whose effectiveness depends critically on a country's development stage and baseline stability level.