Informality and Macroeconomic Shock Transmission in Sub-Saharan Africa: Evidence from Local Projections

More than 70 percent of workers in Sub-Saharan Africa are employed outside the formal labour market, yet the macroeconomic role of this informal sector during external shocks remains poorly understood. We examine whether informality conditions the transmission of adverse commodity price shocks to unemployment, household consumption, and output across 44 Sub-Saharan African countries, 1991-2022. Identification uses the individual-commodity terms-of-trade shock from the IMF PCTOT database, weighting internationally determined prices for up to 45 commodities by each country's predetermined net trade exposure. A balance test confirms that initial informality is uncorrelated with commodity trade structure, supporting the interaction design. Adverse commodity price shocks significantly reduce household consumption from the three-year horizon onwards. Higher production-side informality (DGE) significantly buffers this consumption decline, consistent with informal-sector income maintenance. Effects on unemployment and aggregate GDP are not significantly conditioned by informality in the pooled sample, though among net commodity exporters informality amplifies output losses. The informal sector provides meaningful consumption protection against commodity price shocks in Sub-Saharan Africa.