Economics at your fingertips  

Out of the shadows or into the dark? Economic openness, IMF programs, and the growth of shadow economies

Robert G. Blanton (), Bryan Early () and Dursun Peksen ()
Additional contact information
Robert G. Blanton: University of Alabama at Birmingham
Bryan Early: State University of New York Albany
Dursun Peksen: University of Memphis

The Review of International Organizations, 2018, vol. 13, issue 2, No 7, 309-333

Abstract: Abstract The existence of shadow economies is an important, yet understudied, issue for international political economy and development. This study examines how two distinct types of international economic engagement—economic openness and participation in International Monetary Fund (IMF) programs—affect the growth of shadow (informal) sectors. We theorize that increased economic openness will reduce the size of countries’ shadow sectors. More specifically, we posit that eliminating market-distorting trade barriers will decrease the incentives for shadow sector activities such as smuggling. Additionally, we posit that increased participation in global production and supply chains is likely to lead to a positive, “climb to the top” effect on states’ regulatory and labor policies that enhance the prospective benefits associated with formal sectors. Conversely, we argue that participation in IMF structural adjustment programs can lead to great shadow sector activity as IMF-imposed structural conditions might cause significant near-term economic hardship and degrade states’ regulatory capacity. The results from a panel of 145 countries from 1971 to 2012 indicate that economic openness reduces the size of the shadow economy, while participation in IMF programs is significantly related to a larger shadow economy. These findings have important implications for understanding how the divergent forms of international economic engagement might affect shadow economies.

Keywords: Shadow Economies; IMF; Globalization; Structural adjustment (search for similar items in EconPapers)
JEL-codes: O17 F6 F53 F33 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.springer. ... iology/journal/11558

DOI: 10.1007/s11558-018-9298-3

Access Statistics for this article

The Review of International Organizations is currently edited by A. Dreher

More articles in The Review of International Organizations from Springer
Bibliographic data for series maintained by Sonal Shukla ().

Page updated 2020-04-23
Handle: RePEc:spr:revint:v:13:y:2018:i:2:d:10.1007_s11558-018-9298-3