The effect of informal economy on environmental degradation

Abstract

This thesis aims to provide comprehensive research on the lesser-known part of the economy, which is Informal Economy and, in the end, analyze the relationship between informal economy and environmental degradation. Informal Economy has been explained with its history, scope, measurement methods, causes and effects. In addition, the term environmental degradation has been analyzed from different perspectives such as its historical background, measurement methods, economic impact, and market failures. After explaining these necessary concepts, a literature review and empirical analysis has been conducted to understand the effect of informal economy on the level of environmental degradation. According to the results, informal economy constitutes a sizable portion of the economy especially for non-developed countries. The analysis represents a negative relationship between environmental degradation and informal economy, meaning higher informal economy is associated with lower environmental degradation.