Shedding light on the shadow economy: exploring the impact of the african continental free trade area agreement (AFCFTA) on africa's informal secto

Abstract

The formalization of the African Continental Free Trade Area Agreement (AfCFTA) by the African Union (AU) as the largest Free Trade Agreement (FTA) in the world has the potential to become a stepping stone for the African continent to their economic independence and development. Nevertheless, little is mentioned about informality in the literature and projections about the agreement, which forms a significant part of the AU members’ economies. This Bachelor’s Thesis explores the relationship between trade liberalization and informality more in-depth, and through a multiple regression analysis with a dataset containing over 22 African countries, what factors contribute to informality, and then measures the effect through a within-sample forecast of tariff reduction in the informal economy. The result from our model concludes that tariff reduction, all else held constant, does lead to a reduction of informality as a percentage of GDP.