The Relationship between GDP and the Size of the Informal Economy: Empirical Evidence for Spain

University of Leipzig, Faculty Papers No. 127

24 Pages Posted: 20 Oct 2013 Last revised: 25 Feb 2014

See all articles by Pablo Duarte

Pablo Duarte

Flossbach von Storch Research Institute

Date Written: February 25, 2014

Abstract

The empirical evidence on the linkage of the informal economy and GDP is ambiguous. It depends on the method used to estimate the size of the informal economy. I propose a common factor of the different approximations of the size of the informal economy as an alternative. Using Spain as an example I find that GDP Granger-causes informality, but not the other way around. I also find that positive GDP shocks induce positive and statistically significant responses of the size of the informal economy.

Keywords: Informal economy, dynamic factor model

JEL Classification: C38, O17

Suggested Citation

Duarte, Pablo, The Relationship between GDP and the Size of the Informal Economy: Empirical Evidence for Spain (February 25, 2014). University of Leipzig, Faculty Papers No. 127, Available at SSRN: https://ssrn.com/abstract=2342389 or http://dx.doi.org/10.2139/ssrn.2342389

Pablo Duarte (Contact Author)

Flossbach von Storch Research Institute ( email )

Ottoplatz 1
Köln, 50679
Germany

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