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What is Hidden, in the Hidden Economy of Pakistan? Size, Causes, Issues and Implications

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  • Gulzar, Ahmed
  • Junaid, Novaira
  • Haider, Adnan

Abstract

There is a worldwide contemporary debate about the role of the hidden economy in achieving the goal of sustained and inclusive economic growth and development, especially in the context of its spillover effects on the formal economy. For this purpose, policy makers and academicians have made concerted efforts to estimate the size of the hidden economy and to analyze its causes, issues and implications on key macroeconomic variables. However, there is a consensus among the policy makers that a better macroeconomic policy formulation and its true implementation are subject to the proper management of the associated issues of the hidden economy with suitable policy measures. In Pakistan, it is generally assumed that the hidden economy contributes about 30% to 50% to the overall GDP. The purpose of this paper is to estimate more precisely the size of the hidden economy with the determination of its potential causes and implications. Five statistical and structural modeling approaches namely; simple monetary approach, modified monetary approach using dynamic ordinary least square (DOLS), multiple-indicators multiple-causes (MIMIC) approach, electricity consumption approach and labor market survey based approach are used to estimate the size of the hidden economy and to analyze the characteristic nature of its growth over the period. The study also investigates the potential determinants of the hidden economy and various interrelated socio-economic issues in perspective of achieving national goal of inclusive growth and development. Finally, policy implications are provided consistent with pervading facts of the hidden economy in Pakistan especially in the context of the 18th Amendment and the 7th NFC Award.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28571.

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Date of creation: 15 Nov 2010
Date of revision: 25 Dec 2010
Handle: RePEc:pra:mprapa:28571

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Keywords: Hidden Economy; Size; Causes; Socio-Economic Implications; Inclusive Growth and Development; 18th Amendment and 7th NFC Award of Pakistan;

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Cited by:
  1. Haider, Adnan & Din, Musleh-ud & Ghani, Ejaz, 2012. "Monetary policy, informality and business cycle fluctuations in a developing economy vulnerable to external shocks," MPRA Paper 42484, University Library of Munich, Germany.

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