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The relationship between GDP and the size of the informal economy: Empirical evidence for Spain

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  • Duarte, Pablo

Abstract

The empirical evidence on the linkage of the informal economy and GDP is ambiguous. It depends on the method used to estimate the size of the informal economy. I propose a common factor of four different approximations of the size of the informal economy as an alternative. Using Spain as an example I find that GDP Granger-causes informality, but not the other way around. I also find that positive GDP shocks induce positive and statistically significant responses of the size of the informal economy.

Suggested Citation

  • Duarte, Pablo, 2014. "The relationship between GDP and the size of the informal economy: Empirical evidence for Spain," Working Papers 127, University of Leipzig, Faculty of Economics and Management Science.
  • Handle: RePEc:zbw:leiwps:127
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    References listed on IDEAS

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    More about this item

    Keywords

    informal economy; dynamic factor model;

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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