 A matching model of endogenous growth and underground firmsGaetano Lisi and Maurizio Pugno International Journal of Economic Theory, 2015, vol. 11, issue 4, 347-369 Abstract: type="main" xml:lang="en"> Economic growth and unemployment exhibit an ambiguous relationship, according to empirical studies. This ambiguity can be investigated by observing the role of the underground economy in shaping the productivity of firms. Indeed, unemployment may be absorbed by underground firms, which adopt backward technology, at the cost of reduced economic growth. Alternatively, unemployment diminishes because productivity grows by employing workers who prefer to become skilled, and thus not to work in underground firms. This paper develops these arguments by using a matching model with underground firms and heterogeneous entrepreneurial ability, and by assuming skills-driven growth. Economic growth thus becomes endogenous, and both the underground sector and unemployment become persistent. The main result is that, under conditions of strict monitoring of the regularity of firms, the underground economy is squeezed, unemployment is reduced, and growth is high, whereas in the case of lax monitoring, the underground economy expands, unemployment is absorbed, and growth is low. Date: 2015 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:ijethy:v:11:y:2015:i:4:p:347-369 Ordering information: This journal article can be ordered from Access Statistics for this article International Journal of Economic Theory is currently edited by Kazuo Nishimura and Makoto Yano More articles in International Journal of Economic Theory from The International Society for Economic Theory |
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