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The devil is in the shadow. Do institutions affect income and productivity or only official income and official productivity?

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  • Axel Dreher

    ()

  • Pierre-Guillaume Méon

    ()

  • Friedrich Schneider

    ()

Abstract

This paper assesses the relationship between institutions, output, and productivity when official output is corrected for the size of the shadow economy. Our results confirm the usual positive impact of institutional quality on official output and total factor productivity, and its negative impact on the size of the underground economy. However, once output is corrected for the shadow economy, the relationship between institutions and output becomes weaker. The impact of institutions on total (“corrected”) factor productivity becomes insignificant. Differences in corrected output must then be attributed to differences in factor endowments. These results survive several tests for robustness. Copyright The Author(s) 2014

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Bibliographic Info

Article provided by Springer in its journal Public Choice.

Volume (Year): 158 (2014)
Issue (Month): 1 (January)
Pages: 121-141

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Handle: RePEc:kap:pubcho:v:158:y:2014:i:1:p:121-141

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Web page: http://www.springerlink.com/link.asp?id=100332

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Keywords: Shadow economy; Income; Aggregate productivity; Development accounting; O11; O17; O47; O5;

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Cited by:
  1. Thorvaldur Gylfason & Eduard Hochreiter, 2007. "Growing Apart? A Tale of Two Republics: Estonia and Georgia," CESifo Working Paper Series 2155, CESifo Group Munich.
  2. HALICIOGLU, Ferda & Dell’Anno, Roberto, 2009. "An ARDL model of unrecorded and recorded economies in Turkey," MPRA Paper 24982, University Library of Munich, Germany.
  3. Charles Plaigin, 2009. "Exploratory study on the presence of cultural and institutional growth spillovers," DULBEA Working Papers 09-03.RS, ULB -- Universite Libre de Bruxelles.
  4. Lena Calahorrano & Philipp an de Meulen, 2011. "Demographics and Factor Flows – A Political Economy Approach," Ruhr Economic Papers 0299, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  5. Philipp Harms & Philipp an de Meulen, 2009. "The Demographics of Expropriation Risk," Working Papers 09.02, Swiss National Bank, Study Center Gerzensee.
  6. Abdeslam Marfouk, 2008. "The African brain drain: scope and determinants," DULBEA Working Papers 08-07.RS, ULB -- Universite Libre de Bruxelles.
  7. Efendic, Adnan & Pugh, Geoff & Adnett, Nick, 2011. "Institutions and economic performance: A meta-regression analysis," European Journal of Political Economy, Elsevier, vol. 27(3), pages 586-599, September.
  8. Libman, Alexander, 2008. "Democracy and growth: is the effect non-linear?," MPRA Paper 17795, University Library of Munich, Germany.
  9. Libman, A., 2010. "Empirical Research on Determinants of Decentralization: A Literature Survey," Journal of the New Economic Association, New Economic Association, issue 6, pages 10-29.
  10. Thorvaldur Gylfason & Eduard Hochreiter, 2008. "Growing Apart? A+L3954 Tale of Two Republics," IMF Working Papers 08/235, International Monetary Fund.

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