The Informal Economy in Lebanon: Dangers and Benefits

Abstract

This thesis investigates through situational and empirical analysis the beneficial and detrimental characteristics of the informal economy in Lebanon and its impact on the public and state interest through its socio-economic associations. The informal economy is a polymorphous entity, and in order to determine its versatile contribution, has been separated into four different variables or key drivers. The four key drivers constitute the determinant variables of the informal economy.
The main method used to explore the four determinant variables is the Force Field analysis. The first key driver is informal remittances as they represent a significant fraction of the informal economic activity in Lebanon and make a major contribution to Gross Domestic Product. The second driver is corruption, as this involves massive economic transactions on a daily basis, with an enormous impact at both the microeconomic and macroeconomic levels. The third key driver is the informal employment and commerce sector, as the unpaid VAT and corporate and income tax evasion results in a huge annual loss of government revenue in Lebanon. The fourth and last key driver is the illegal networks, as Lebanon represents an international hub for smuggling, drug and people trafficking and money-laundering, with strong links with, and implication for, its sectarian constituents. The current situation in Lebanon fuels the creation of a chaotic socio-economic environment where it is impossible to estimate accurately the significance of the informal economy, or indeed the size of the overall economy.
As far as possible in this research all the key drivers have been independently and collectively evaluated through the data collected from the primary sources (users/public opinion, government officials and academics) and secondary material in order to assess each key driver’s input to the informal economy. Subsequently the thesis provides an estimation of the beneficial and detrimental contribution of the informal economy in Lebanon, as well as the overall perceptions of each of the respondent groups. Lastly, the primary and secondary materials are collectively assessed from a single perspective to build, using an inductive approach, a theoretical model of the factors which fuel and perpetuate the informal economy in the country. The present thesis may constitute the foundation for future analysis of the informal economy in Lebanon by providing unconventional recommendations. It is an attempt to present the possibility of an alternative approach to the informal economy, by stressing its merits and advantages, while also recognising the dangers and challenges it poses for both the state and the society.