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The Economic Growth–Inflation–Shadow Economy Trilogy: Developed Versus Developing Countries

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  • Nedra Baklouti
  • Younes Boujelbene

Abstract

This study investigates the nexus among the economic growth–inflation–shadow economy trilogy by including the role of political stability for a sample of 33 developed and 14 developing countries over the 2005–2016 period. For the OECD countries, our results showed a bidirectional nexus among economic growth and the size of the shadow economy while the causality running from economic growth to inflation, on the one hand, and from inflation to the informal economy, on the other hand, is unidirectional. As for the MENA panel, the relationship between inflation and the underground economy remains bidirectional, while the relationship running from inflation to economic growth, on the one hand, and from the informal economy to economic growth, on the other hand, is unidirectional. With the introduction of political stability, the nexus among the informal economy and the inflation in the OECD countries becomes unidirectional running from inflation to the shadow economy. However, in the case of MENA countries, controlling for political stability reduces the magnitude of the coefficient of the shadow economy on inflation. We note that with a low level of political stability, countries facing the large size of the informal sector will shift their financing from taxes to seigniorage.

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  • Nedra Baklouti & Younes Boujelbene, 2019. "The Economic Growth–Inflation–Shadow Economy Trilogy: Developed Versus Developing Countries," International Economic Journal, Taylor & Francis Journals, vol. 33(4), pages 679-695, October.
    • Handle: RePEc:taf:intecj:v:33:y:2019:i:4:p:679-695
    DOI: 10.1080/10168737.2019.1641540
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    Cited by:

    1. Loudi Njoya & Ibrahim Ngouhouo & Simplice A. Asongu & Friedrich Schneider, 2022. "The role of economic prosperity on informality in Africa: evidence of corruption thresholds from PSTR," Working Papers of the African Governance and Development Institute. 22/012, African Governance and Development Institute..
    2. Loudi Njoya & Ibrahim Ngouhouo & Moussa Njoupouognigni & Schneider Friederich & Zenabou Tourere, 2024. "Can we understand the simultaneous evolution between economic and informality growth in Africa? A preliminary explanation," Journal of International Development, John Wiley & Sons, Ltd., vol. 36(1), pages 398-414, January.
    3. Rümeysa Çelik & Abdurrahman Keskin & Abdulkadir Keskin, 2021. "Türkiye’de Ekonomik Büyüme, İşsizlik ve Enflasyonun Kayıt Dışı İstihdam Üzerindeki Etkisi: ARDL Sınır Testi Yaklaşımı," Journal of Social Policy Conferences, Istanbul University, Faculty of Economics, vol. 0(80), pages 451-474, June.
    4. Canh, Nguyen Phuc & Thanh, Su Dinh, 2020. "Financial development and the shadow economy: A multi-dimensional analysis," Economic Analysis and Policy, Elsevier, vol. 67(C), pages 37-54.
    5. Onwuka , Ifeanyi & Ayeni, Emmanuel, 2023. "Financial Development and Shadow Economy in Africa: Evidence from Panel Quantile Regression," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 48(2), pages 123-141, June.
    6. Khalil Mhadhbi & Chokri Terzi, 2022. "Shadow economy threshold effect in the relationship finance–growth in Tunisia: A nonlinear autoregressive distributed lag approach," Journal of International Development, John Wiley & Sons, Ltd., vol. 34(3), pages 636-651, April.

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