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An ARDL model of unrecorded and recorded economies in Turkey

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  • HALICIOGLU, Ferda
  • Dell’Anno, Roberto

Abstract

Purpose: The goal of this paper is twofold: to estimate the unrecorded economy (UE) of Turkey over the period 1987-2007 using a revised version of the currency demand approach and to analyze the relationship between UE and recorded GDP. Design/methodology/approach: we propose to measure UE by the autoregressive distributed lag (ARDL) approach to cointegration analysis. Toda- Yamamoto causality tests are also conducted to identify the relationship between unrecorded and recorded GDP. Findings: This research provides fresh evidence on the size of the UE to the recorded GDP in Turkey which ranges from 10.7% to 18.9% over the estimation period. Moreover, empirical evidence concretely suggests that causality runs from the recorded GDP to the UE. However, there exists a mild reverse causality. Research limitations/implications: Measures of the UE, and particularly those based on monetary approaches, have been criticized on several accounts, including their lack of robustness and weak theoretical foundations (e.g. the velocity of money in the recorded economy and in the UE is the same). Practical implications: The analysis suggests that the UE is pro-cyclical with respect to the recorded GDP. It suggests that the phenomenon of UE is more dangerous when the economy is in expensive phase. Hence, during a positive business cycle it is clearly desirable for government the anti-UE controls should be more effective. Originality/value: The ARDL approach to estimating the size of UE eliminates criticism that the previous currency demand estimations are based on partial adjustment models. Therefore, our econometric selected cointegration methodology and causality test is an improvement over the existing studies.

Suggested Citation

  • HALICIOGLU, Ferda & Dell’Anno, Roberto, 2009. "An ARDL model of unrecorded and recorded economies in Turkey," MPRA Paper 24982, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:24982
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    Cited by:

    1. Mohsen Bahmani-oskooee & Jungho Baek, 2015. "The Marshall-Lerner condition at commodity level: Evidence from Korean-U.S. trade," Economics Bulletin, AccessEcon, vol. 35(2), pages 1136-1147.
    2. Halicioglu, Ferda & Yolac, Sema, 2015. "Testing the impact of unemployment on self-employment: empirical evidence from OECD countries," MPRA Paper 65026, University Library of Munich, Germany.
    3. Edward Nissan & Shahdad Naghshpour, 2013. "Connecting corruption to ethnic polarization and religious fractionalization," Journal of Economic Studies, Emerald Group Publishing, vol. 40(6), pages 763 - 774, November.

    More about this item

    Keywords

    Unrecorded economy; Currency demand approach; ARDL model; Economic Development; Turkey.;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy

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