The Informal Economy in Motion: ASEAN-5 Drivers and Challenges

This study examines the determinants of informality in ASEAN-5 (Indonesia, Malaysia, the Philippines, Thailand, and Singapore) using Partial Least Squares Structural Equation Modeling (PLS-SEM) on panel data from 2015–2022. Five hypotheses tested the effects of institutional quality, social protection, labor market policy, economic growth, and technological advancement (as mediator). Results show that institutional quality significantly reduces informality (β = –0.378; p = 0.015), while social protection, labor market policy, and economic growth exert positive and significant effects, reflecting policy design–implementation gaps and growth patterns that fail to generate formal employment. Technological advancement does not mediate the growth–informality relationship (β = 0.011; p = 0.335). The model explains 88.8% of the variance in informality (adjusted R² = 0.888). Policy implications highlight the need for stronger institutions, inclusive social protection, adaptive labor regulations, and digitalization integrated with e‑governance to foster formalization.