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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

    ()
    (KOF Swiss Economic Institute, ETH Zurich)

  • Pierre-Guillaume Méon

    ()
    (University of Brussels, DULBEA, Belgium)

  • Friedrich Schneider

    ()
    (Department of Economics, Johannes Kepler University of Linz, Austria)

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 KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 07-179.

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Length: 41 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:kof:wpskof:07-179

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

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Cited by:
  1. Philipp Harms & Philipp an de Meulen, 2009. "The Demographics of Expropriation Risk," Working Papers 09.02, Swiss National Bank, Study Center Gerzensee.
  2. Libman, Alexander, 2008. "Democracy and growth: is the effect non-linear?," MPRA Paper 17795, University Library of Munich, Germany.
  3. Roberto Dell'Anno & Ferda Halicioglu, 2010. "An ARDL model of unrecorded and recorded economies in Turkey," Journal of Economic Studies, Emerald Group Publishing, vol. 37(6), pages 627-646, September.
  4. Abdeslam Marfouk, 2008. "The African brain drain: scope and determinants," DULBEA Working Papers 08-07.RS, ULB -- Universite Libre de Bruxelles.
  5. 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.
  6. Thorvaldur Gylfason & Eduard Hochreiter, 2008. "Growing Apart? A+L3954 Tale of Two Republics," IMF Working Papers 08/235, International Monetary Fund.
  7. Gylfason, Thorvaldur & Hochreiter, Eduard, 2009. "Growing apart? A tale of two republics: Estonia and Georgia," European Journal of Political Economy, Elsevier, vol. 25(3), pages 355-370, September.
  8. 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.
  9. 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.
  10. 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.

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