IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_6424.html
   My bibliography  Save this paper

The Impact of Economic Globalization on the Shadow Economy in Egypt

Author

Listed:
  • Mohammad Reza Farzanegan
  • Mai Hassan

Abstract

This study examines the economic globalization and the shadow economy nexus in Egypt. Using time series data from 1976 to 2013, the impulse response analysis shows that the response of the shadow economy in Egypt to positive shocks in economic globalization is negative and statistically significant for the first three years following the shock. This finding is obtained by controlling for several intermediary channels in globalization-shadow economy nexus such as education, government spending, industrial production, and labor force participation. Our results show the importance of promoting economic globalization by reducing the costs of doing business and trade in dealing with sizable shadow economy in Egypt.

Suggested Citation

  • Mohammad Reza Farzanegan & Mai Hassan, 2017. "The Impact of Economic Globalization on the Shadow Economy in Egypt," CESifo Working Paper Series 6424, CESifo.
  • Handle: RePEc:ces:ceswps:_6424
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp6424.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rafael La Porta & Andrei Shleifer, 2014. "Informality and Development," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 109-126, Summer.
    2. 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.
    3. Schneider Friedrich, 2010. "The Influence of Public Institutions on the Shadow Economy: An Empirical Investigation for OECD Countries," Review of Law & Economics, De Gruyter, vol. 6(3), pages 441-468, December.
    4. Christopher A. Sims & Tao Zha, 1999. "Error Bands for Impulse Responses," Econometrica, Econometric Society, vol. 67(5), pages 1113-1156, September.
    5. Dong, Bin & Dulleck, Uwe & Torgler, Benno, 2012. "Conditional corruption," Journal of Economic Psychology, Elsevier, vol. 33(3), pages 609-627.
    6. Clements, Michael P & Hendry, David F, 1995. "Forecasting in Cointegration Systems," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 127-146, April-Jun.
    7. Farzanegan, Mohammad Reza & Raeisian Parvari, Mozhgan, 2014. "Iranian-Oil-Free Zone and international oil prices," Energy Economics, Elsevier, vol. 45(C), pages 364-372.
    8. Utku Utkulu & Durmus Özdemir, 2005. "Does Trade Liberalization Cause a Long Run Economic Growth in Turkey," Economic Change and Restructuring, Springer, vol. 37(3), pages 245-266, September.
    9. Sajjad F. Dizaji & Mohammad Reza Farzanegan & Alireza Naghavi, 2016. "Political institutions and government spending behavior: theory and evidence from Iran," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(3), pages 522-549, June.
    10. PHAM Thi Hong Hanh, 2011. "Globalisation versus Informality: Evidence from developing countries," FIW Working Paper series 074, FIW.
    11. Zaki, Chahir & Selwaness, Irène, 2012. "Assessing the Impact of Trade Reforms on Informality in Egypt," Conference papers 332191, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    12. Axel Dreher & Christos Kotsogiannis & Steve McCorriston, 2009. "How do institutions affect corruption and the shadow economy?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(6), pages 773-796, December.
    13. Pablo Acosta & Leonardo Gasparini, 2007. "Capital Accumulation, Trade Liberalization, and Rising Wage Inequality: The Case of Argentina," Economic Development and Cultural Change, University of Chicago Press, vol. 55(4), pages 793-812, July.
    14. Koujianou Goldberg, Pinelopi & Pavcnik, Nina, 2003. "The response of the informal sector to trade liberalization," Journal of Development Economics, Elsevier, vol. 72(2), pages 463-496, December.
    15. Buehn, Andreas & Schneider, Friedrich, 2008. "MIMIC Models, Cointegration and Error Correction: An Application to the French Shadow Economy," IZA Discussion Papers 3306, Institute of Labor Economics (IZA).
    16. 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).
    17. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
    18. Friedrich Schneider & Andreas Buehn & Claudio Montenegro, 2010. "New Estimates for the Shadow Economies all over the World," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 443-461.
    19. Andreas Buehn & Mohammad Reza Farzanegan, 2012. "Smuggling around the world: evidence from a structural equation model," Applied Economics, Taylor & Francis Journals, vol. 44(23), pages 3047-3064, August.
    20. Eckhard Siggel, 2010. "The Indian informal sector: The impact of globalization and reform," International Labour Review, International Labour Organization, vol. 149(1), pages 93-105, March.
    21. Farzanegan, Mohammad Reza & Markwardt, Gunther, 2009. "The effects of oil price shocks on the Iranian economy," Energy Economics, Elsevier, vol. 31(1), pages 134-151, January.
    22. Carr, Marilyn. & Chen, Martha Alter., 2002. "Globalization and the informal economy : how global trade and investment impact on the working poor," ILO Working Papers 993541723402676, International Labour Organization.
    23. James H. Stock & Mark W. Watson, 2001. "Vector Autoregressions," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 101-115, Fall.
    24. 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.
    25. 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.
    26. Aleman-Castilla, Benjamin, 2006. "The effect of trade liberalization on informality and wages: evidence from Mexico," LSE Research Online Documents on Economics 19779, London School of Economics and Political Science, LSE Library.
    27. Biswas, Amit K. & Farzanegan, Mohammad Reza & Thum, Marcel, 2012. "Pollution, shadow economy and corruption: Theory and evidence," Ecological Economics, Elsevier, vol. 75(C), pages 114-125.
    28. Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo.
    29. Sajjad Faraji Dizaji & Peter A G van Bergeijk, 2013. "Potential early phase success and ultimate failure of economic sanctions," Journal of Peace Research, Peace Research Institute Oslo, vol. 50(6), pages 721-736, November.
    30. Benjamin Aleman-Castilla, 2006. "The Effect of Trade Liberalization on Informality and Wages: Evidence from Mexico," CEP Discussion Papers dp0763, Centre for Economic Performance, LSE.
    31. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    32. Niklas Potrafke, 2015. "The Evidence on Globalisation," The World Economy, Wiley Blackwell, vol. 38(3), pages 509-552, March.
    33. Hoffman, Dennis L & Rasche, Robert H, 1996. "Assessing Forecast Performance in a Cointegrated System," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(5), pages 495-517, Sept.-Oct.
    34. Schneider,Friedrich & Enste,Dominik H., 2016. "The Shadow Economy," Cambridge Books, Cambridge University Press, number 9781316600894, January.
    35. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-144, January.
    36. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-392, May.
    37. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    38. Farzanegan, Mohammad Reza, 2011. "Oil revenue shocks and government spending behavior in Iran," Energy Economics, Elsevier, vol. 33(6), pages 1055-1069.
    39. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
    40. Atsuyuki Naka & David Tufte, 1997. "Examining impulse response functions in cointegrated systems," Applied Economics, Taylor & Francis Journals, vol. 29(12), pages 1593-1603.
    41. repec:ilo:ilowps:354172 is not listed on IDEAS
    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. Gheorghe H. Popescu & Adriana Ana Maria Davidescu & Catalin Huidumac, 2018. "Researching the Main Causes of the Romanian Shadow Economy at the Micro and Macro Levels: Implications for Sustainable Development," Sustainability, MDPI, vol. 10(10), pages 1-37, September.

    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. Farzanegan, Mohammad Reza & Hassan, Mai & Badreldin, Ahmed Mohamed, 2020. "Economic liberalization in Egypt: A way to reduce the shadow economy?," Journal of Policy Modeling, Elsevier, vol. 42(2), pages 307-327.
    2. Sajjad F. Dizaji & Mohammad Reza Farzanegan & Alireza Naghavi, 2016. "Political institutions and government spending behavior: theory and evidence from Iran," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(3), pages 522-549, June.
    3. Mohammad Reza Farzanegan & Pooya Alaedini & Khayyam Azizimehr, 2017. "Middle Class in Iran: Oil Rents, Modernization, and Political Development," MAGKS Papers on Economics 201756, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    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. Mohammad Reza Farzanegan, 2014. "Military Spending and Economic Growth: The Case of Iran," Defence and Peace Economics, Taylor & Francis Journals, vol. 25(3), pages 247-269, June.
    6. Sajjad Faraji Dizaji, 2019. "Trade openness, political institutions, and military spending (evidence from lifting Iran’s sanctions)," Empirical Economics, Springer, vol. 57(6), pages 2013-2041, December.
    7. Sajjad Faraji Dizaji & Peter A G van Bergeijk, 2013. "Potential early phase success and ultimate failure of economic sanctions," Journal of Peace Research, Peace Research Institute Oslo, vol. 50(6), pages 721-736, November.
    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. Mohammad Reza Farzanegan & Sajjad Faraji Dizaji, 2014. "Political Institutions and Government Spending Behavior in Iran," MAGKS Papers on Economics 201403, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    10. Zahra Zarepour, 2022. "Short- and long-run macroeconomic impacts of the 2010 Iranian energy subsidy reform," SN Business & Economics, Springer, vol. 2(10), pages 1-32, October.
    11. 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.
    12. 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.
    13. Mohammad Reza Farzanegan & Tim Krieger, 2018. "Oil Revenues Shocks and Inequality in Iran," Working Papers 1226, Economic Research Forum, revised 18 Sep 2018.
    14. 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.
    15. Ishak, Phoebe W. & Farzanegan, Mohammad Reza, 2020. "The impact of declining oil rents on tax revenues: Does the shadow economy matter?," Energy Economics, Elsevier, vol. 92(C).
    16. Mai HASSAN & Friedrich SCHNEIDER, 2016. "Modelling the Egyptian Shadow Economy: A MIMIC model and A Currency Demand approach," Journal of Economics and Political Economy, KSP Journals, vol. 3(2), pages 309-339, June.
    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. 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.
    19. Aziz N. Berdiev & James W. Saunoris & Friedrich Schneider, 2018. "Give Me Liberty, or I Will Produce Underground: Effects of Economic Freedom on the Shadow Economy," Southern Economic Journal, John Wiley & Sons, vol. 85(2), pages 537-562, October.
    20. Aziz N. Berdiev & James W. Saunoris, 2019. "Globalization and Informal Entrepreneurship: A Cross-Country Analysis," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 47(1), pages 65-80, March.

    More about this item

    Keywords

    shadow economy; globalization; VAR model; impulse responses; Egypt;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • F15 - International Economics - - Trade - - - Economic Integration
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:ces:ceswps:_6424. 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: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    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.