Reflects the Hidden: Measuring Sri Lankan Shadow Economy

D. I. J Samaranayake

Asian Economic and Financial Review, 2017, vol. 7, issue 7, 656-676

Abstract: This study refines both theoretical and pragmatic basis in estimating the size of shadow economy in Sri Lanka. Theoretical investigation had noticed a possibility of use the rate of underemployment as a determinant to measure the size of shadow economy. Further it reveals that the relative magnitudes of job finding rate (f) and devaluation in job separation rate (f*) can change the direction of relationship between the rate of underemployment and the size of shadow economy. Empirical investigation with two fitted MIMIC models; MIMIC 5-1-2a and MIMIC 7-1-2 and Benchmark calculations derive a series of average values for Sri Lankan shadow economy for the period 1990-2015. Calculations for both models tend to decrease from 40-50 percent of GDP. Further comparisons express a strong positive relationship between shadow economy with both underemployment and self-employment.

Keywords: Shadow economy; Unemployment; Underemployment; Structural relationship; MIMIC models; Benchmark calculations; Sri Lanka (search for similar items in EconPapers)
Date: 2017
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