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Mitigating Shadow Economy Through Dual Banking Sector Development in Malaysia

In: Islamic Economies

Author

Listed:
  • Muzafar Shah Habibullah

    (Universiti Putra Malaysia)

  • Abdul Hamid Baharom

    (International Centre for Education in Islamic Finance)

  • Badariah Haji Din

    (Universiti Utara Malaysia)

  • Fumitaka Furuoka

    (University of Malaya)

Abstract

Theory argues that as long as the shadow economy is of sufficient size, the leakage or loss of tax revenue through tax evasion will also be substantial. In this chapter, we provide new estimates of the size of the shadow economy in Malaysia for the period 1971–2013. Further, we relate the shadow economy to its determinants as measured by the misery index. This chapter reveals that the relationship between the shadow economy and financial development in Malaysia exhibits an inverted U-shaped curve. The chapter concludes that the Malaysian government should embark on programs that can reduce the size of the shadow economy, relying on its dual banking system of Islamic and conventional banks.

Suggested Citation

  • Muzafar Shah Habibullah & Abdul Hamid Baharom & Badariah Haji Din & Fumitaka Furuoka, 2017. "Mitigating Shadow Economy Through Dual Banking Sector Development in Malaysia," Palgrave CIBFR Studies in Islamic Finance, in: Nafis Alam & Syed Aun R. Rizvi (ed.), Islamic Economies, chapter 4, pages 41-62, Palgrave Macmillan.
    • Handle: RePEc:pal:pcichp:978-3-319-47937-8_4
    DOI: 10.1007/978-3-319-47937-8_4
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    Cited by:

    1. Peter Nderitu GITHAIGA, 2019. "Foreign Remittances, Private Sector Investment and Banking Sector Development," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 3(2), pages 85-112.

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