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Modelling the Egyptian Shadow Economy: A MIMIC model and A Currency Demand approach

Listed author(s):
  • Mai HASSAN

    ()

  • Friedrich SCHNEIDER

    ()

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

We estimate the size and trend of the Egyptian shadow economy using two of the most commonly used methods: the currency demand approach and the structural equation MIMIC model. To the best of our knowledge, this is the first study to estimate an index of the size of the shadow economy in Egypt during the last four decades (1976 to 2013). We address the long term association between the variables, relax the assumption of multivariate normality and demonstrate different scenarios of constraining the reference variable in the MIMIC model. In addition to the standard explanatory variables used in the literature, we consider variables that are specifically related to the Egyptian economy such as self-employment, agricultural importance and a proxy for institutional quality of democratic institutions. Our results indicate a decreasing trend of the size of the shadow economy, yet it still has a huge weight on the official GDP for a developing country like Egypt leading to some negative externalities and thus hindering the development of the country.

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File URL: http://www.kspjournals.org/index.php/JEPE/article/download/788/859
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File URL: http://www.kspjournals.org/index.php/JEPE/article/view/788/859
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Article provided by KSP Journals in its journal Journal of Economics and Political Economy.

Volume (Year): 3 (2016)
Issue (Month): 2 (June)
Pages: 309-339

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Handle: RePEc:ksp:journ1:v:3:y:2016:i:2:p:309-339
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  3. Friedrich Schneider, 2005. "Shadow Economies of 145 Countries all over the World: What Do We Really Know?," CREMA Working Paper Series 2005-13, Center for Research in Economics, Management and the Arts (CREMA).
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  5. Schneider, Friedrich, 1986. " Estimating the Size of the Danish Shadow Economy Using the Currency Demand Approach: An Attempt," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(4), pages 643-668.
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