Estimating the roles of financial sector development and international trade openness in underground economies: Evidence from the European Union

Hatice Imamoglu

No 2017-50, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: This paper investigates both the static and dynamic relationships between the development within the financial sector development and international trade openness with regard to the size of the underground economy in 20 EU (European Union) Countries. Panel data analysis will be conducted for the period 2006 to 2014, in order to examine the effect of the financial sector development and trade openness on the size of the underground economy. In addition to the static relationship framework, the Arellano-Bond Generalized Method of Moments econometric method will be applied to examine the dynamic framework between the variables. The main findings of this paper suggest that financial development has a significant impact on the size of the underground economy, and the existence of the negative correlation between the official GDP and the size of the underground economy is proven. In conclusion, the development within the financial sector is a significant contributor to the underground economy.

Keywords: Financial Sector Development; International Trade Openness; Corruption Perception Index; Underground Economy; European Union Countries (search for similar items in EconPapers)
JEL-codes: C23 E10 E26 E44 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-int, nep-iue and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:201750

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