IDEAS home Printed from https://ideas.repec.org/a/spr/jecfin/v44y2020i1d10.1007_s12197-019-09480-w.html
   My bibliography  Save this article

International movements of money and men: impact on the informal economy

Author

Listed:
  • Rajeev K. Goel

    (Illinois State University
    Kiel Institute for the World Economy)

  • Rati Ram

    (Illinois State University)

  • Friedrich Schneider

    (Johannes Kepler University)

  • Ashley Potempa

    (Illinois State University)

Abstract

Using panel data for a large cross-country sample, we consider the influences of FDI inflows, inward development aid, and immigration on the informal sector. Both FDI and immigration increase the informal sector, with the effect of immigration being relatively more robust. Aid inflows reduce the informal sector, but the statistical significance is low. Among the control variables, government size persistently increases the informal economy, while inflation sometimes lowers the informal sector. As a secondary exercise, we consider the effect of globalization and note the informality-increasing role of social and overall globalization, with economic and political globalization being statistically insignificant.

Suggested Citation

  • Rajeev K. Goel & Rati Ram & Friedrich Schneider & Ashley Potempa, 2020. "International movements of money and men: impact on the informal economy," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 44(1), pages 179-197, January.
    • Handle: RePEc:spr:jecfin:v:44:y:2020:i:1:d:10.1007_s12197-019-09480-w
    DOI: 10.1007/s12197-019-09480-w
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s12197-019-09480-w
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s12197-019-09480-w?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Andreas Buehn & Friedrich Schneider, 2012. "Shadow economies around the world: novel insights, accepted knowledge, and new estimates," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(1), pages 139-171, February.
    2. Aziz N. Berdiev & James W. Saunoris, 2018. "Does globalisation affect the shadow economy?," The World Economy, Wiley Blackwell, vol. 41(1), pages 222-241, January.
    3. Schneider, Friedrich, 2005. "Shadow economies around the world: what do we really know?," European Journal of Political Economy, Elsevier, vol. 21(3), pages 598-642, September.
    4. Lars P. Feld & Friedrich Schneider, 2010. "Survey on the Shadow Economy and Undeclared Earnings in OECD Countries," German Economic Review, Verein für Socialpolitik, vol. 11(2), pages 109-149, May.
    5. Richard J. Cebula, 2013. "New and Current Evidence on Determinants of Aggregate Federal Personal Income Tax Evasion in the United States," American Journal of Economics and Sociology, Wiley Blackwell, vol. 72(3), pages 701-731, July.
    6. Giles, David E A, 1999. "Measuring the Hidden Economy: Implications for Econometric Modelling," Economic Journal, Royal Economic Society, vol. 109(456), pages 370-380, June.
    7. Mohammad Ali & Alok K. Bohara, 2017. "How Does FDI Respond to the Size of Shadow Economy: An Empirical Analysis under a Gravity Model Setting," International Economic Journal, Taylor & Francis Journals, vol. 31(2), pages 159-178, April.
    8. Giray Gozgor, 2018. "Robustness of the KOF index of economic globalisation," The World Economy, Wiley Blackwell, vol. 41(2), pages 414-430, February.
    9. Schneider, Friedrich, 2012. "The Shadow Economy and Work in the Shadow: What Do We (Not) Know?," IZA Discussion Papers 6423, Institute of Labor Economics (IZA).
    10. Nikopour, Hesam & Shah Habibullah, Muzafar & Schneider, Friedrich & Law, Siong Hook, 2009. "Foreign Direct Investment and Shadow Economy: A Causality Analysis Using Panel Data," MPRA Paper 14485, University Library of Munich, Germany.
    11. Tanzi, Vito, 1999. "Uses and Abuses of Estimates of the Underground Economy," Economic Journal, Royal Economic Society, vol. 109(456), pages 338-347, June.
    12. Paulina Restrepo-Echavarria, 2015. "Measuring Underground Economy Can Be Done, but It Is Difficult," The Regional Economist, Federal Reserve Bank of St. Louis, issue Jan.
    13. Hassan, Mai & Schneider, Friedrich, 2016. "Size and Development of the Shadow Economies of 157 Countries Worldwide: Updated and New Measures from 1999 to 2013," IZA Discussion Papers 10281, Institute of Labor Economics (IZA).
    14. Friedrich Schneider, 2012. "The Shadow Economy and Tax Evasion: What Do We (Not) Know?," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(02), pages 03-12, July.
    15. Niklas Potrafke, 2015. "The Evidence on Globalisation," The World Economy, Wiley Blackwell, vol. 38(3), pages 509-552, March.
    16. Reinhard Neck & Jens Wächter & Friedrich Schneider, 2012. "Tax avoidance versus tax evasion: on some determinants of the shadow economy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(1), pages 104-117, February.
    17. David Roodman, 2009. "A Note on the Theme of Too Many Instruments," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 135-158, February.
    18. Frey, Bruno S. & Weck-Hanneman, Hannelore, 1984. "The hidden economy as an 'unobserved' variable," European Economic Review, Elsevier, vol. 26(1-2), pages 33-53.
    19. Schneider,Friedrich & Enste,Dominik H., 2016. "The Shadow Economy," Cambridge Books, Cambridge University Press, number 9781316600894.
    20. Richard J. Cebula, 2004. "Income Tax Evasion Revisited: The Impact of Interest Rate Yields on Tax-Free Municipal Bonds," Southern Economic Journal, John Wiley & Sons, vol. 71(2), pages 418-423, October.
    21. Philipp Harms & Pierre†Guillaume Méon, 2018. "Good and useless FDI: The growth effects of greenfield investment and mergers and acquisitions," Review of International Economics, Wiley Blackwell, vol. 26(1), pages 37-59, February.
    22. Friedrich SCHNEIDER, 2016. "Estimating the Size of the Shadow Economy: Methods, Problems and Open Questions," Turkish Economic Review, KSP Journals, vol. 3(2), pages 256-280, June.
    23. Axel Dreher, 2006. "Does globalization affect growth? Evidence from a new index of globalization," Applied Economics, Taylor & Francis Journals, vol. 38(10), pages 1091-1110.
    24. Hassan, Mai, 2017. "The impact of the shadow economy on aid and economic development nexus in Egypt," MPRA Paper 80990, University Library of Munich, Germany.
    25. Lars P. Feld & Friedrich Schneider, 2010. "Survey on the Shadow Economy and Undeclared Earnings in OECD Countries," German Economic Review, Verein für Socialpolitik, vol. 11(2), pages 109-149, May.
    26. 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).
    27. Goel, Rajeev K., 2012. "Effect of generic cigarettes on US cigarette demand and smuggling," Economics Letters, Elsevier, vol. 115(1), pages 114-117.
    28. Banerjee, Biswajit, 1983. "The Role of the Informal Sector in the Migration Process: A Test of Probabilistic Migration Models and Labour Market Segmentation for India," Oxford Economic Papers, Oxford University Press, vol. 35(3), pages 399-422, November.
    29. Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January.
    30. Sandmo, Agnar, 2005. "The Theory of Tax Evasion: A Retrospective View," National Tax Journal, National Tax Association;National Tax Journal, vol. 58(4), pages 643-663, December.
    31. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
    32. Friedrich Schneider & Désirée Teobaldelli, 2012. "Beyond the Veil of Ignorance: The Influence of Direct Democracy on the Shadow Economy," CESifo Working Paper Series 3749, CESifo.
    33. Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June.
    34. Rajeev Goel & James Saunoris, 2014. "Global corruption and the shadow economy: spatial aspects," Public Choice, Springer, vol. 161(1), pages 119-139, October.
    35. Friedrich Schneider (ed.), 2011. "Handbook on the Shadow Economy," Books, Edward Elgar Publishing, number 13432.
    36. Elgin, Ceyhun, 2013. "Internet usage and the shadow economy: Evidence from panel data," Economic Systems, Elsevier, vol. 37(1), pages 111-121.
    37. Colin C. Williams & Friedrich Schneider, 2016. "Measuring the Global Shadow Economy," Books, Edward Elgar Publishing, number 16551.
    38. Donal Mac Géidigh & Friedrich Schneider & Matthias Blum, 2016. "Grey Matters: Charting the Development of the Shadow Economy," CESifo Working Paper Series 6234, CESifo.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Aziz N. Berdiev & Rajeev K. Goel & James W. Saunoris, 2022. "Do disease epidemics force economic activity underground? International evidence," Contemporary Economic Policy, Western Economic Association International, vol. 40(2), pages 263-282, April.
    2. Aziz N. Berdiev & Brandon Gomes & James W. Saunoris, 2023. "Revisiting the nexus between globalisation and the shadow economy: Untying the influences of de jure versus de facto globalisation," The World Economy, Wiley Blackwell, vol. 46(1), pages 27-54, January.
    3. Sai Tang & Zhuolin Wang & Gengqi Yang & Wenwen Tang, 2020. "What Are the Implications of Globalization on Sustainability?—A Comprehensive Study," Sustainability, MDPI, vol. 12(8), pages 1-11, April.
    4. Ting Xu & Zhike Lv, 2023. "The effect of tourism on the shadow economy: The level of economic development is key," Tourism Economics, , vol. 29(8), pages 2129-2142, December.
    5. Nestor SHPAK & Ihor KULYNIAK & Maryana GVOZD & Olga PYROG & Wlodzimierz SROKA, 2021. "Shadow Economy And Its Impact On The Public Administration: Aspects Of Financial And Economic Security Of The Country'S Industry," REVISTA ADMINISTRATIE SI MANAGEMENT PUBLIC, Faculty of Administration and Public Management, Academy of Economic Studies, Bucharest, Romania, vol. 2021(36), pages 81-101, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Goel, Rajeev K. & Saunoris, James W. & Schneider, Friedrich, 2019. "Drivers of the underground economy for over a century: A long term look for the United States," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 95-106.
    2. Schneider Friedrich & Buehn Andreas, 2017. "Shadow Economy: Estimation Methods, Problems, Results and Open questions," Open Economics, De Gruyter, vol. 1(1), pages 1-29, March.
    3. Friedrich SCHNEIDER, 2016. "Estimating the Size of the Shadow Economy: Methods, Problems and Open Questions," Turkish Economic Review, KSP Journals, vol. 3(2), pages 256-280, June.
    4. Feige, Edgar L., 2015. "Reflections on the meaning and measurement of Unobserved Economies: What do we really know about the “Shadow Economy”?," MPRA Paper 68466, University Library of Munich, Germany.
    5. Nedra Baklouti & Younes Boujelbene, 2020. "A simultaneous equation model of economic growth and shadow economy: Is there a difference between the developed and developing countries?," Economic Change and Restructuring, Springer, vol. 53(1), pages 151-170, February.
    6. Friedrich Schneider, 2014. "In the Shadow of the State – The Informal Economy and Informal Economy Labor Force," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 4, pages 227-248, December.
    7. Leandro Medina & Friedrich Schneider, 2019. "Shedding Light on the Shadow Economy: A Global Database and the Interaction with the Official One," CESifo Working Paper Series 7981, CESifo.
    8. Luc Jacolin & Joseph Keneck Massil & Alphonse Noah, 2021. "Informal sector and mobile financial services in emerging and developing countries: Does financial innovation matter?," The World Economy, Wiley Blackwell, vol. 44(9), pages 2703-2737, September.
    9. Rajeev K. Goel & James W. Saunoris & Friedrich Schneider, 2019. "Growth In The Shadows: Effect Of The Shadow Economy On U.S. Economic Growth Over More Than A Century," Contemporary Economic Policy, Western Economic Association International, vol. 37(1), pages 50-67, January.
    10. Chletsos, Michael & Sintos, Andreas, 2021. "Hide and seek: IMF intervention and the shadow economy," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 292-319.
    11. Friedrich Schneider, 2013. "Size and Progression of the Shadow Economies of Turkey and Other OECD Countries from 2003 to 2013; Some New Facts," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 2(2), pages 83-116, May.
    12. Donal Mac Géidigh & Friedrich Schneider & Matthias Blum, 2016. "Grey Matters: Charting the Development of the Shadow Economy," CESifo Working Paper Series 6234, CESifo.
    13. Schneider, Friedrich, 2014. "The Shadow Economy and Shadow Labor Force: A Survey of Recent Developments," IZA Discussion Papers 8278, Institute of Labor Economics (IZA).
    14. Mohammed Nayel Abu Alfoul & Ibrahim Naser Khatatbeh & Fouad Jamaani, 2022. "What Determines the Shadow Economy? An Extreme Bounds Analysis," Sustainability, MDPI, vol. 14(10), pages 1-22, May.
    15. Friedrich Schneider, 2012. "The Shadow Economy and Tax Evasion: What Do We (Not) Know?," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(02), pages 03-12, July.
    16. Schneider, Friedrich & Buehn, Andreas, 2012. "Shadow Economies in Highly Developed OECD Countries: What Are the Driving Forces?," IZA Discussion Papers 6891, Institute of Labor Economics (IZA).
    17. Sahnoun, Marwa & Abdennadher, Chokri, 2019. "The nexus between unemployment rate and shadow economy: A comparative analysis of developed and developing countries using a simultaneous-equation model," Economics Discussion Papers 2019-30, Kiel Institute for the World Economy (IfW Kiel).
    18. Afonso, Oscar & Neves, Pedro Cunha & Pinto, Tiago, 2020. "The non-observed economy and economic growth: A meta-analysis," Economic Systems, Elsevier, vol. 44(1).
    19. Goel, Rajeev K. & Nelson, Michael A., 2016. "Shining a light on the shadows: Identifying robust determinants of the shadow economy," Economic Modelling, Elsevier, vol. 58(C), pages 351-364.
    20. repec:ces:ifodic:v:14:y:2017:i:4:p:19267788 is not listed on IDEAS
    21. Friedrich Schneider & Andreas Buehn & Claudio E. Montenegro, 2011. "Shadow Economies All Over the World: New Estimates for 162 Countries from 1999 to 2007," Chapters, in: Friedrich Schneider (ed.), Handbook on the Shadow Economy, chapter 1, Edward Elgar Publishing.

    More about this item

    Keywords

    Informal economy; Shadow economy; Migration; Foreign direct investment; Development aid; Globalization;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jecfin:v:44:y:2020:i:1:d:10.1007_s12197-019-09480-w. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.