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The linkage between corruption and shadow economy size: does geography matter?

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  • Heli Virta
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    Abstract

    Purpose – The purpose of this paper is to examine the impact of corruption on the size of the shadow economy in countries that differ with respect to income level or geographical location. The underlying idea is that the primary manifestation of corruption might be associated with country characteristics and that different types of corruption might have different consequences. Design/methodology/approach – IV regressions and bootstrapping are applied to a cross-section of countries to show that geographical location of a country impacts on the relationship between corruption and the shadow economy. An interaction term of the level of corruption and geography is used to capture the differences in the types and consequences of corruption between countries. Findings – Corruption does not seem to affect the size of the shadow economy outside the tropics. Instead, the higher the tropical area fraction of a country, the more a certain level of corruption enlarges the unofficial economy. Moreover, corruption and the shadow economy seem to be substitutes in the tropics. Research limitations/implications – Different types of corruption may have different consequences. Originality/value – Unlike most of the previous literature, the paper accounts for the fact that some corrupt practices tend to be commonplace in some parts of the world, while other countries may be plagued by other types of corruption. Therefore, the consequences of corruption might also differ.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal International Journal of Development Issues.

    Volume (Year): 9 (2010)
    Issue (Month): 1 (April)
    Pages: 4-24

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    Handle: RePEc:eme:ijdipp:v:9:y:2010:i:1:p:4-24

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    Related research

    Keywords: Corruption; Developing countries; Economic development;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Rapoport, Hillel & Docquier, Frédéric, 2005. "The Economics of Migrants’ Remittances," IZA Discussion Papers 1531, Institute for the Study of Labor (IZA).
    2. Mahalia Jackman & Roland Craigwell & Winston Moore, 2009. "Economic volatility and remittances: evidence from SIDS," Journal of Economic Studies, Emerald Group Publishing, vol. 36(2), pages 135-146, May.
    3. Adams, Richard Jr. & Page, John, 2005. "Do international migration and remittances reduce poverty in developing countries?," World Development, Elsevier, vol. 33(10), pages 1645-1669, October.
    4. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 135-174.
    5. Acosta, Pablo & Calderon, Cesar & Fajnzylber, Pablo & Lopez, Humberto, 2008. "What is the Impact of International Remittances on Poverty and Inequality in Latin America?," World Development, Elsevier, vol. 36(1), pages 89-114, January.
    6. Roland Craigwell & Mahalia Jackman & Winston Moore, 2010. "Economic volatility and remittances," International Journal of Development Issues, Emerald Group Publishing, vol. 9(1), pages 25-42, April.
    7. Amuedo-Dorantes, Catalina & Pozo, Susan, 2004. "Workers' Remittances and the Real Exchange Rate: A Paradox of Gifts," World Development, Elsevier, vol. 32(8), pages 1407-1417, August.
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    Cited by:
    1. Hideaki Goto & Yukichi Mano, 2012. "Labor market competitiveness and the size of the informal sector," Journal of Population Economics, Springer, vol. 25(2), pages 495-509, January.

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