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Foreign Direct Investment and Shadow Economy: A Causality Analysis Using Panel Data


  • Nikopour, Hesam
  • Shah Habibullah, Muzafar
  • Schneider, Friedrich
  • Law, Siong Hook


The present paper investigates the link between the shadow economy and FDI using the Granger panel causality test. For that purpose we use the shadow economy and FDI data for 145 countries of five data points 1999/2000, 2001/2002, 2002/2003, 2003/2004 and 2004/2005. The system GMM estimation results show that FDI causes the shadow economy and vice versa. The empirical evidence supports the hypotheses that higher FDI causes lower shadow economy and higher shadow economy causes higher FDI.

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  • 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.
  • Handle: RePEc:pra:mprapa:14485

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    References listed on IDEAS

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    Cited by:

    1. Pavla Nikolovova & Filip Pertold & Mario Vozar, 2014. "Self-employment and Small Workplaces in the Czech and Slovak Republics: Microeconometric Analysis of Labor Force Transitions," Proceedings of Economics and Finance Conferences 0402132, International Institute of Social and Economic Sciences.

    More about this item


    Shadow economy; FDI; panel causality;

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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