Trade Policies and the Shadow Economy: The Nexus of Tariffs, Non-Tariff Barriers and Trade Freedom in N-11 Countries

Muhammad Salah Uddin, Abm Absar Hamid, Md. Sahadat Hosain, Sajib Uddin Mamun, Md Roknuzzaman, Zobayer Ahmed and Omar Faruque
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Muhammad Salah Uddin: Sakarya University
Abm Absar Hamid: Army Institute of Business Administration
Md. Sahadat Hosain: University of Chittagong
Sajib Uddin Mamun: University of Chittagong
Md Roknuzzaman: University of Florida
Zobayer Ahmed: Bangladesh Institute of Governance and Management (BIGM)
Omar Faruque: Stamford University Bangladesh

East Asian Economic Review, 2025, vol. 29, issue 3, 271-302

Abstract: The shadow economy (SE), which is hard to define and even harder to tackle, is posing a serious challenge in emerging countries. The study examines the impact of tariff (TAR) and non-tariff (NTAR) barriers on SE in N-11 countries. Additionally, it investigates the role of market signaling factors, specifically trade freedom (TFR)’s impact on SE. Employing the method of moments quantile regression (MMQR) and mean group estimation techniques, the study analyzes panel data from 2000 to 2020. The empirical findings demonstrate that increases in TAR barriers significantly contribute to an increase in SE activities. Conversely, NTAR regulations and enhanced trade freedom substantially reduce the magnitude of informal economic activities. These results highlight the importance of non-tariff measures and trade liberalization in reducing informality and fostering a formal economy. The study offers practical insights for policymakers, economic planners, and international organizations in designing trade policies that encourage formal participation while limiting shadow economy activities.

Keywords: Shadow Economy; Informal Economy; Tariff; Non-tariff; Trade Freedom (search for similar items in EconPapers)
JEL-codes: E00 E69 O11 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ris:eaerev:021635

DOI: 10.11644/KIEP.EAER.2025.29.3.450

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