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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 even becomes insignificant. Differences in corrected output must then be attributed to differences in factor endowments. These results survive several tests for robustness.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2150.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2150

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Keywords: shadow economy; income; aggregate productivity; development accounting;

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Cited by:
  1. Thorvaldur Gylfason & Eduard Hochreiter, 2008. "Growing Apart? A+L3954 Tale of Two Republics," IMF Working Papers, International Monetary Fund 08/235, International Monetary Fund.
  2. Alexander Libman, 2012. "Democracy and Growth: Is The Effect Non-Linear?," Economic Research Guardian, Weissberg Publishing, Weissberg Publishing, vol. 2(1), pages 99-120, May.
  3. Gylfason, Thorvaldur & Hochreiter, Eduard, 2009. "Growing apart? A tale of two republics: Estonia and Georgia," European Journal of Political Economy, Elsevier, Elsevier, vol. 25(3), pages 355-370, September.
  4. Efendic, Adnan & Pugh, Geoff & Adnett, Nick, 2011. "Institutions and economic performance: A meta-regression analysis," European Journal of Political Economy, Elsevier, Elsevier, vol. 27(3), pages 586-599, September.
  5. Philipp Harms & Philipp Meulen, 2012. "The demographics of expropriation risk," Journal of Population Economics, Springer, Springer, vol. 25(3), pages 809-832, July.
  6. Charles Plaigin, 2009. "Exploratory study on the presence of cultural and institutional growth spillovers," DULBEA Working Papers, ULB -- Universite Libre de Bruxelles 09-03.RS, ULB -- Universite Libre de Bruxelles.
  7. Abdeslam Marfouk, 2008. "The African brain drain: scope and determinants," DULBEA Working Papers, ULB -- Universite Libre de Bruxelles 08-07.RS, ULB -- Universite Libre de Bruxelles.
  8. HALICIOGLU, Ferda & Dell’Anno, Roberto, 2009. "An ARDL model of unrecorded and recorded economies in Turkey," MPRA Paper 24982, University Library of Munich, Germany.
  9. Lena Calahorrano & Philipp an de Meulen, 2011. "Demographics and Factor Flows – A Political Economy Approach," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0299, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  10. Libman, A., 2010. "Empirical Research on Determinants of Decentralization: A Literature Survey," Journal of the New Economic Association, New Economic Association, New Economic Association, issue 6, pages 10-29.

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