Discussion Paper

No. 2017-50 | August 10, 2017
Estimating the roles of financial sector development and international trade openness in underground economies: evidence from the European Union

Abstract

This paper investigates both the static and dynamic relationships between the development within the financial sector development and international trade openness with regard to the size of the underground economy in 20 EU (European Union) Countries. Panel data analysis will be conducted for the period 2006 to 2014, in order to examine the effect of the financial sector development and trade openness on the size of the underground economy. In addition to the static relationship framework, the Arellano-Bond Generalized Method of Moments econometric method will be applied to examine the dynamic framework between the variables. The main findings of this paper suggest that financial development has a significant impact on the size of the underground economy, and the existence of the negative correlation between the official GDP and the size of the underground economy is proven. In conclusion, the development within the financial sector is a significant contributor to the underground economy.

JEL Classification:

C23, E26, E44, E10

Assessment

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Links

Cite As

Hatice Imamoglu (2017). Estimating the roles of financial sector development and international trade openness in underground economies: evidence from the European Union. Economics Discussion Papers, No 2017-50, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2017-50


Comments and Questions


Anonymous - Review
September 07, 2017 - 14:42

Dear Editor,

I have read this article with interest, which deals with a new and original research study. Prior to final stage of this article, I have several concerns:

1. What is the main gap in this research area? So, what will be the main contribution of this ...[more]

... study to the theory and to existing literature?

2. Why do the authors think that EU countries would be interesting for the finance-informal economy nexus?

3. As far as I see from results, the authors used econometric methodology sufficiently by different model approaches. My only concern is if the authors could explain which model option provided the best result or conclusion for that nexus.

4. It will be also better if the authors provide further research directions in this nexus. Is there still a gap for further studies? This explanation can be done as far as theoretical framework or methodological approaches are concerned.

Having revised this article along with above mentioned requests, this article will be an interesting and original research outlet for Economics journal.

Best Regards.


Anonymous - response to reviewer request
September 19, 2017 - 19:26

Anonymous - Review Comments
September 09, 2017 - 10:44

I completed to read this article, which is interesting. In order to enrich the paper, I can suggest the followings:

1. What is the exact originality of this study? This needs to be outlined very clearly.
2. Although the authors provided some literatüre studies, the authors need to make ...[more]

... the link of informal economies to the other aggregates clearer. The following studies are important to be considered as discussion outlet with this respect. Therefore, I invite the authors to cite and discuss the following studies in theoretical background of informal economics-sectors nexus:

Williams, C. C. (2008), Cross-National Variations in Undeclared Work: Results From a Survey of 27 European Countries, International Journal of Economic Perspectives, Volume 2, Issue 2, pp. 46-63.

Williams, C. C. & Round, J. (2009), Out Of The Margins: Re-Theorizing The Role Of The Informal Economy In Ukraine, International Journal of Economic Perspectives, Volume 3, Issue 1, pp. 45-58.

Williams, C. C. (2010), Evaluating Competing Theories of the Shadow Economy: Some Lessons from an English Locality, International Journal of Economic Perspectives, Volume 4, Issue 2, pp. 391-402.

Williams, C. C. (2011), Blurring the formal/informal economy divide: beyond a dual economies approach, International Journal of Economic Perspectives, Volume 5, Issue 4, pp. 347-362.


Imamoglu, H. (2016), Re-estimation of the Size of Underground Economy in European Countries: MIMIC Approach, International Journal of Economic Perspectives, Volume 10, Issue 1, pp. 171-193.

3. Why do the authors think that Turkey would be interesting for such study field? After defining the aim of the study, sample selection should be defined clearly.

4. What lessons should Turkish authorities learn from the results of this study? Such implications need to be added to the end of conclusion section.

After considering such important revision requests, this article will be an interesting research study for publication.

Kind Regards.


Anonymous - response to reviewer request
September 21, 2017 - 20:40