Investigating the Impact of Unemployment Rate on the Romanian Shadow Economy. A Complex Approach Based on ARDL and SVAR Analysis

Adriana Anamaria Davidescu (Alexandru) ()
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Adriana Anamaria Davidescu (Alexandru): Department of Statistics and Econometrics, Academy of Economic Studies, Bucharest

Journal for Economic Forecasting, 2014, issue 4, 109-127

Abstract: The paper aims to investigate the potential impact of unemployment rates (both recorded and ILO) on the Romanian shadow economy (SE) for quarterly data covering the period 2000-2013, using ARDL cointegration method in conjunction with the structural VAR (SVAR) analysis in order to provide evidence for both the long and short-run dynamics between the variables. The size of the shadow economy as % of official GDP was estimated previously using a special case of the structural equation models - the MIMIC model, recording the value of 40% at the beginning of 2000 and following a downward trend over the analyzed period. The results of ARDL approach pointed out that there is no long-run relation between unemployment rates and the Romanian shadow economy. The relationship between the two variables is further tested by imposing a long-run restriction in the Structural VAR model to analyze the effect in the size of the Romanian shadow economy to a temporary shock in unemployment rates. The impulse response function generated by the Structural VAR confirms that in the short run, a rise in the recorded unemployment rate will lead to an increase in the size of the shadow economy, meanwhile an increase in the ILO unemployment rate highlighted a decrease in the size of the shadow economy.

Keywords: shadow economy, unemployment rates, cointegration; ARDL Bounds Testing, SVAR model, impulse response function (search for similar items in EconPapers)
JEL-codes: C32 E41 O17 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (10)

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