What Determines the Shadow Economy? An Extreme Bounds Analysis

The purpose of this paper was to identify the leading causes determining the shadow economy at the global level. The empirical analysis used was the Sala-i-Martin version of extreme bounds analysis (EBA) applied to a cross-sectional sample of 132 countries. The results suggested that the quality of...

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Bibliographic Details
Published in:Sustainability 2022-05, Vol.14 (10), p.5761
Main Authors: Abu Alfoul, Mohammed Nayel, Khatatbeh, Ibrahim Naser, Jamaani, Fouad
Format: Article
Language:English
Subjects:
Corruption
Economic development
Economic growth
Economics
Informal economy
Poverty
Property rights
Shadows
Statistical analysis
Sustainability
Sustainable development
Tax rates
Unemployment
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Summary:The purpose of this paper was to identify the leading causes determining the shadow economy at the global level. The empirical analysis used was the Sala-i-Martin version of extreme bounds analysis (EBA) applied to a cross-sectional sample of 132 countries. The results suggested that the quality of institutions is the primary determinant of the shadow economy. The results showed that only four out of six factors of the quality of institutions proved to be robust determining factors of the shadow economy; they are bureaucracy quality, law and order, corruption, and internal conflict. Moreover, monetary freedom and secured property rights are also robust and negatively related to the shadow economy. An interesting result is that information and communication technology (ICT) development is vital to the shadow economy. Mainly, internet usage is robust and negatively associated with the shadow economy. Furthermore, inflation and poverty emerge as key determining factors of the shadow economy. Our findings will aid in the development of recommendations for potential strategies to minimize the international extent of the shadow economy.
ISSN:2071-1050
2071-1050
DOI:10.3390/su14105761