Modelling the Egyptian Shadow Economy: A Currency Demand and A MIMIC Model Approach

51 Pages Posted: 9 Mar 2016

See all articles by Mai Hassan

Mai Hassan

University of Michigan at Ann Arbor

Friedrich Schneider

Johannes Kepler University Linz - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA)

Date Written: January 27, 2016

Abstract

We estimate the size and trend of the Egyptian shadow economy using two of the most common methods: the currency demand approach and the structural equation MIMIC model. To the best of our knowledge, this is the first comprehensive study to estimate the size of the shadow economy in Egypt during the last four decades (1976 to 2013). In addition to the standard explanatory variables used in the currency demand approach and MIMIC model, we consider variables that are specifically related to the Egyptian economy such as self-employment, agricultural importance and a proxy for institutional quality of democratic institutions. Our results indicate a decreasing trend of the size of the shadow economy from more than 50% in 1976 to 32% in 2013, yet it still comprises a large portion of the official GDP.

Keywords: shadow economy of Egypt, currency demand approach (CDA), MIMIC estimation

JEL Classification: C32, H26, I20, O17, P48

Suggested Citation

Hassan, Mai and Schneider, Friedrich G., Modelling the Egyptian Shadow Economy: A Currency Demand and A MIMIC Model Approach (January 27, 2016). CESifo Working Paper Series No. 5727, Available at SSRN: https://ssrn.com/abstract=2743153

Mai Hassan

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

Friedrich G. Schneider (Contact Author)

Johannes Kepler University Linz - Department of Economics ( email )

Altenbergerstrasse 69
A-4040 Linz, 4040
Austria
+43 732 2468 8210 (Phone)
+43 732 2468 8208 (Fax)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Institute for the Study of Labor (IZA)

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