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The relationship between GDP and the size of the informal economy: empirical evidence for Spain

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  • Pablo Duarte

    () (University of Leipzig)

Abstract

Abstract The empirical evidence on the linkage of the informal economy and GDP is ambiguous. It depends on the method used to estimate the size of the informal economy, since each method includes some specific approach noise. I propose a common factor of four different informality measurement methods as a way of reducing the noise. Using Spain as an example I find that neither GDP Granger-causes informality nor informality Granger-causes GDP. If at all, GDP and informality only weakly respond to shocks of the other variable. The formal and informal economies in Spain seem to be rather independent arenas for economic exchange.

Suggested Citation

  • Pablo Duarte, 2017. "The relationship between GDP and the size of the informal economy: empirical evidence for Spain," Empirical Economics, Springer, vol. 52(4), pages 1409-1421, June.
  • Handle: RePEc:spr:empeco:v:52:y:2017:i:4:d:10.1007_s00181-016-1109-1
    DOI: 10.1007/s00181-016-1109-1
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    References listed on IDEAS

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    More about this item

    Keywords

    Informal economy; Dynamic factor model; Granger causality;

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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