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Economic complexity and shadow economy: A multi-dimensional analysis

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  • Ha, Le Thanh
  • Dung, Hoang Phuong
  • Thanh, To Trung

Abstract

Our paper is the first attempt to examine the non-linear effects of economic complexity on the shadow economy. By applying diverse econometric techniques to a global sample of 42 low-income & lower-middle-income (LI&LMICs) and 30 upper-middle-income (UMICs) and 38 high-income (HICs) during the 2002–2017 period, our findings confirm the presence of a non-linear association between economic complexity outlook index and the shadow economy while economic complexity index has an increasingly significant and negative influence on shadow economy. Furthermore, a non-linear relationship between economic complexity and the shadow economy more likely exists either in the long run or in the high-income economy. Notably, we find that economic complexity plays a critical role in deteriorating the positive effects of uncertainty on the size of the shadow economy, while institutional quality significantly determines the effect of economic complexity.

Suggested Citation

  • Ha, Le Thanh & Dung, Hoang Phuong & Thanh, To Trung, 2021. "Economic complexity and shadow economy: A multi-dimensional analysis," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 408-422.
    • Handle: RePEc:eee:ecanpo:v:72:y:2021:i:c:p:408-422
    DOI: 10.1016/j.eap.2021.09.011
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    More about this item

    Keywords

    Economic complexity index; Shadow economy; Non-linear influences; Short-term and long-term effects; Global sample;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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