Macroeconomic fundamentals, institutional quality and shadow economy in OIC and non-OIC countries

Shabeer Khan and Mohd Ziaur Rehman

Journal of Economic Studies, 2022, vol. 49, issue 8, 1566-1584

Abstract: Purpose - The purpose of this paper is to analyze the relationship between macroeconomic fundamentals, intuitional quality and shadow economy. Design/methodology/approach - By utilizing data setspanning from 2004 to 2015 of 141 countries, the study has employed advanced panel technique, i.e. Generalized Method of Moments (GMM) method. In order to check consistency of the results, the study also used fixed effect and random effect for robustness. Findings - The study finds that for the full sample, institutional quality has negative effect on shadow economy while macroeconomic fundaments effect shadow economy differently. After splitting the sample into Organization of Islamic Cooperation (OIC) and non-OIC countries subsamples, it observes same influence of macroeconomic fundaments and institutional quality on shadow economy, but the effect of macroeconomic fundaments and institutional quality on shadow economy is less observed for OIC countries. The results are found consistence by using different estimation methods. Originality/value - The current literature has focused on estimating the size of shadow economy and literature linking the macroeconomic fundaments, institutional quality and shadow economy is scarce. Additionally, this study provides the evidence for cross comparison between OIC economies and non-OIC economies.

Keywords: Macroeconomic fundaments; Institutional quality; Shadow economy; Panel technique (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-04-2021-0203

DOI: 10.1108/JES-04-2021-0203

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