Foreign Direct Investment and Shadow Economy: A Causality Analysis Using Panel Data

Hesam Nikopour (hessamnik@yahoo.com), Muzafar Shah Habibullah, Friedrich Schneider (friedrich.schneider@jku.at) and Siong Hook Law

MPRA Paper from University Library of Munich, Germany

Abstract: The present paper investigates the link between the shadow economy and FDI using the Granger panel causality test. For that purpose we use the shadow economy and FDI data for 145 countries of five data points 1999/2000, 2001/2002, 2002/2003, 2003/2004 and 2004/2005. The system GMM estimation results show that FDI causes the shadow economy and vice versa. The empirical evidence supports the hypotheses that higher FDI causes lower shadow economy and higher shadow economy causes higher FDI.

Keywords: Shadow economy; FDI; panel causality (search for similar items in EconPapers)
JEL-codes: C33 F21 O17 (search for similar items in EconPapers)
Date: 2009-03-25
New Economics Papers: this item is included in nep-dev
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Citations: View citations in EconPapers (12)

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