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What is Hidden, in the Hidden Economy of Pakistan? Size, Causes, Issues and Implications

Author

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  • Gulzar, Ahmed
  • Junaid, Novaira
  • Haider, Adnan

Abstract

There is a worldwide contemporary debate about the role of the hidden economy in achieving the goal of sustained and inclusive economic growth and development, especially in the context of its spillover effects on the formal economy. For this purpose, policy makers and academicians have made concerted efforts to estimate the size of the hidden economy and to analyze its causes, issues and implications on key macroeconomic variables. However, there is a consensus among the policy makers that a better macroeconomic policy formulation and its true implementation are subject to the proper management of the associated issues of the hidden economy with suitable policy measures. In Pakistan, it is generally assumed that the hidden economy contributes about 30% to 50% to the overall GDP. The purpose of this paper is to estimate more precisely the size of the hidden economy with the determination of its potential causes and implications. Five statistical and structural modeling approaches namely; simple monetary approach, modified monetary approach using dynamic ordinary least square (DOLS), multiple-indicators multiple-causes (MIMIC) approach, electricity consumption approach and labor market survey based approach are used to estimate the size of the hidden economy and to analyze the characteristic nature of its growth over the period. The study also investigates the potential determinants of the hidden economy and various interrelated socio-economic issues in perspective of achieving national goal of inclusive growth and development. Finally, policy implications are provided consistent with pervading facts of the hidden economy in Pakistan especially in the context of the 18th Amendment and the 7th NFC Award.

Suggested Citation

  • Gulzar, Ahmed & Junaid, Novaira & Haider, Adnan, 2010. "What is Hidden, in the Hidden Economy of Pakistan? Size, Causes, Issues and Implications," MPRA Paper 28571, University Library of Munich, Germany, revised 25 Dec 2010.
  • Handle: RePEc:pra:mprapa:28571
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    References listed on IDEAS

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    1. Kemal, M. Ali, 2007. "Fresh Assessment of the Underground Economy and Tax Evasion in Pakistan: Causes, Consequences, and Linkages with the Formal Economy," MPRA Paper 2226, University Library of Munich, Germany.
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    Citations

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    Cited by:

    1. Adnan Haider & Musleh ud Din & Ejaz Ghani, 2012. "Monetary Policy, Informality and Business Cycle Fluctuations in a Developing Economy Vulnerable to External Shocks," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(4), pages 609-681.
    2. Andrew Feltenstein & Biplab Datta, 2018. "Broad Based Subsidies or Targeted Transfers? An Analysis of the Electricity Subsidy in Pakistan," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1801, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    3. repec:ajm:journl:v:10:y:2016:i:2:p:39-55 is not listed on IDEAS
    4. Misbah Kiani & Adeel Ahmed & Khalid Zaman, 2015. "Combining qualitative and quantitative approaches for measuring underground economy of Pakistan," Quality & Quantity: International Journal of Methodology, Springer, vol. 49(1), pages 295-317, January.

    More about this item

    Keywords

    Hidden Economy; Size; Causes; Socio-Economic Implications; Inclusive Growth and Development; 18th Amendment and 7th NFC Award of Pakistan;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy

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