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Shadow economy and income inequality: new empirical evidence from Asian developing countries

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  • Cong Minh Huynh
  • Tan Loi Nguyen

Abstract

This paper examines the impact of shadow economy on income inequality by using a panel data set of 19 Asian countries in the period 1990–2015. In contrast to previous studies, the results from estimations of fixed effect, random effect, and SGMM surprisingly show that the shadow economy reduces income inequality in the research region. Specifically, the shadow economy significantly increases the income share held by lowest quintile and decreases the income share held by highest quintile. The result can be explained by combining the three schools of thought on informal economy including Dualism, Legalism, and Volutarism. The finding contributes to the idea that the shadow economy is not always bad, especially to the poor, out of its negative effects. Therefore, policies to deal with the shadow economy should take the poor into close consideration with other simultaneous solutions for poverty eradication and income inequality reduction in developing countries.

Suggested Citation

  • Cong Minh Huynh & Tan Loi Nguyen, 2020. "Shadow economy and income inequality: new empirical evidence from Asian developing countries," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 25(1), pages 175-192, January.
    • Handle: RePEc:taf:rjapxx:v:25:y:2020:i:1:p:175-192
    DOI: 10.1080/13547860.2019.1643196
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    Cited by:

    1. Phoebe W. Ishak & Mohammad Reza Farzanegan, 2022. "Oil price shocks, protest, and the shadow economy: Is there a mitigation effect?," Economics and Politics, Wiley Blackwell, vol. 34(2), pages 298-321, July.
    2. Cong Minh Huynh & Nam Hoai Tran, 2023. "Financial development, income inequality, and institutional quality: A multi-dimensional analysis," Cogent Economics & Finance, Taylor & Francis Journals, vol. 11(2), pages 2242128-224, June.
    3. Ajide, Kazeem Bello & Ridwan, Lanre Ibrahim, 2023. "Does natural resource wealth hinder or promote activity of the shadow markets in africa?," Resources Policy, Elsevier, vol. 85(PA).
    4. Fatma Nur Karaman Kabadurmus, 2021. "Innovation Challenges in South Asia: Evidence from Bangladesh, Pakistan and India," Journal of South Asian Development, , vol. 16(1), pages 100-129, April.
    5. Bogdan Amzuica & Roxana Adriana Mititelu, 2023. "The underground economy: an exploration of components, size, causes and effects," Technium Social Sciences Journal, Technium Science, vol. 45(1), pages 168-182, July.
    6. Huynh, Cong Minh & Le, Quoc Nha, 2022. "A multi-dimensional free market and income inequality in developing Asia: How does the quality of governance matter?," MPRA Paper 112013, University Library of Munich, Germany.
    7. Younas, Zahid Irshad & Qureshi, Atiqa & Al-Faryan, Mamdouh Abdulaziz Saleh, 2022. "Financial inclusion, the shadow economy and economic growth in developing economies," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 613-621.
    8. Phoebe W. Ishak & Mohammad Reza Farzanegan, 2022. "Oil price shocks, protest, and the shadow economy: Is there a mitigation effect?," Economics and Politics, Wiley Blackwell, vol. 34(2), pages 298-321, July.

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