Relationship between unemployment rate and shadow economy of selected mena countries: a toda -yamamoto and panel causality approach

Rizgar Abdlkarim Abdlaziz; Faisal Ali Khurshid; Hatem Hatef Abdulkadhim Altaee

doi:10.25212/lfu.qzj.5.4.32

Authors

Rizgar Abdlkarim Abdlaziz Department of Management Technique, Technical College of Administration TCA, Sulaimani Polytechnic University, Sulaimani, Kurdistan Region, Iraq
Faisal Ali Khurshid Department of Economics, Faculty of Economics and Management, Sulaimani University, Sulaimani Kurdistan Region, Iraq
Hatem Hatef Abdulkadhim Altaee Department of Accounting, Faculty of Administration and Financial Sciences, Cihan University Sulaimaniya, Sulaimani, Kurdistan Region, Iraq

DOI:

https://doi.org/10.25212/lfu.qzj.5.4.32

Keywords:

Unemployment Rate, Shadow Economy, MENA Countries, Causality.

Abstract

This research is an attempt to investigate the causal relationship between the shadow economy and unemployment rate for selected Middle East and North African countries. The Toda -Yamamoto causality approach and panel Granger causality test are applied. The Toda -Yamamoto results reveal bidirectional causality for Algeria only. However, unidirectional causality running from unemployment to shadow economy found for Turkey and Qatar, the vice versa for Bahrain, Jordan, and Lebanon. Moreover, the panel Granger causality results show bidirectional causality for the MENA region when one and three lags are used. Nevertheless, unidirectional causality running from the shadow economy to the unemployment rate is found when two, four, and five lags are used.

Downloads

Download data is not yet available.

References

Adriana, D., 2014. Revisiting the relationship between unemployment rates and shadow economy. A Toda-Yamamoto approach for the case of Romania. Procedia Economics and Finance, 10, pp.227-236 https://doi.org/10.1016/S2212-5671(14)00297-4

Alexandru, A.A., Dobre, I. and Ghinararu, C.C., 2012, July. The causal relationship between unemployment rate and US shadow economy. A Toda-Yamamoto approach. In Proceedings of the 5th international conference on Applied mathematics, simulation, modelling (pp. 100-105).

Badimon, M.E., 2013. Does unemployment spark collective contentious action? Evidence from a Moroccan social movement. Journal of Contemporary African Studies, 31(2), pp.194-212.

Bertola, G., & Garibaldi.P, 2002. The Structure and History of Italian Unemployment. CESifo «Working Paper, Series, 907.

Bordignon, M., & Zanardi, A. (1997). Tax evasion in Italy. Giornale degli economisti e annali di economia, 169-210.

Chen, M., Harvey, J. and Network, W.I.E.G.O., 2017. The informal economy in Arab nations: a comparative perspective. WIEGO Paper for Arab Watch Report on Informal Employment in MENA Region.

Schneider, F.and Bajada, C., 2009. Unemployment and the Shadow Economy in the OECD. Revue économique, 60(5), pp.1033-1067.

Davidescu, A. and Dobre, I., 2013. The relationship between shadow economy and unemployment rate. A ARDL causality analysis for the case of Romania. In Conference New Techniques and New Technologies for Statistics, (pp. 46–62).

Dell’Anno, R. and Davidescu, A.A., 2019. Estimating shadow economy and tax evasion in Romania. A comparison by different estimation approaches. Economic Analysis and Policy, 63, pp.130-149. https://doi.org/10.1016/j.eap.2019.05.002

Dell’Anno R., Gomez-Antonio, M. and A. Alanon Pardo (2007), Shadow Economy in three different Mediterranean Countries: France, Spain and Greece. A MIMIC Approach, Empirical Economics, 33, pp. 51–84.

Dumitrescu, E.I. and Hurlin, C., 2012. Testing for Granger non-causality in heterogeneous panels. Economic modelling, 29(4), pp.1450-1460. https://doi.org/10.1016/j.econmod.2012.02.014

Fakih, A., Haimoun, N. and Kassem, M., 2020. Youth Unemployment, Gender and Institutions During Transition: Evidence from the Arab Spring. Social Indicators Research, pp.1-26.). https://doi.org/10.1007/s11205-020-02300-3

Fialová, K. and Schneider, O., 2011. Labor institutions and their impact on shadow economies in Europe. The World Bank. Policy Research Working Paper Series.

Goel, R.K., Saunoris, J.W. and Schneider, F., 2019. Growth in the shadows: effect of the shadow economy on US economic growth over more than a century. Contemporary Economic Policy, 37(1), pp.50-67. https://doi.org/10.1111/coep.12288.

Granger, C.W., 1969. Investigating causal relations by econometric models and cross-spectral methods. Econometrica: journal of the Econometric Society, 37(3), pp.424–438.

Im, K.S., Pesaran, M.H. and Shin, Y., 2003. Testing for unit roots in heterogeneous panels. Journal of econometrics, 115(1), pp.53-74.

Kabbani, N., 2019. Youth employment in the Middle East and North Africa: Revisiting and reframing the challenge. Brookings Doha Center Policy Briefing, Doha, February.

Levin, A., Lin, C.F. and Chu, C.S.J., 2002. Unit root tests in panel data: asymptotic and finite-sample properties. Journal of econometrics, 108(1), pp.1-24.

Maddala, G.S. and Wu, S., 1999. A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and statistics, 61(S1), pp.631-652.

Mansour, A.M.A.E.A. and Zaki, I.M., 2019. Estimating the Size of the Shadow Economy in Nine MENA Countries during the Period 2000 to 2017 Using the MIMIC Model. Open Access Library Journal, 6(7), pp.1-14. https://doi.org/10.4236/oalib.1105508

Medina, L. and Schneider, F., 2018. Shadow economies around the world: what did we learn over the last 20 years? International Monetary Fund Working Paper WP/18/17.

O’Sullivan, A., Rey, M.E. and Mendez, J.G., 2011. Opportunities and Challenges in the MENA Region. Arab world competitiveness report, pp.42-67.

OECD, 2017. Shining Light on the Shadow Economy: Opportunities and Threats. Paris: OECD.

Paraskevas, A. 2020. “Human Trafficking and Modern Slavery in Europe’s hotels “In: C. Lashley (Ed). Slavery and Liberation in hotels restaurants and bars, Oxford: Routledge ISBN: 978-0367424664.

Raphael, S. and Winter-Ebmer, R., 2001. Identifying the effect of unemployment on crime. The Journal of Law and Economics, 44(1), pp.259-283.

Saafi, S., Farhat, A. and Mohamed, M.B.H., 2015. Testing the relationships between shadow economy and unemployment: empirical evidence from linear and nonlinear tests. Studies in Nonlinear Dynamics & Econometrics, 19(5), pp.585-608. https://doi.org/10.1515/snde-2014-0021

Sahnoun, M. and Abdennadher, C., 2019. The nexus between unemployment rate and shadow economy: A comparative analysis of developed and developing countries using a simultaneous-equation model. Economics Discussion Papers (No. 2019-30). pp.1-27

Schneider, F. and Enste, D.H., 2013. The shadow economy: An international survey. Cambridge, United Kingdom, Cambridge University Press

Schneider, F., Raczkowski, K., & Mróz, B., 2015. Shadow economy and tax evasion in the EU. Journal of Money Laundering Control, 18(1), pp. 34–51.

Schneider, F., & Buehn, A. (2012). Shadow economies in highly developed OECD countries: What are the driving forces?. ? Discussion Paper, Department of Economics,University of Linz, Linz, Austria.

Tedds, L. M., & Giles, D. E. (2002). Taxes and the Canadian underground economy. Taxes and the Canadian underground economy, Toronto: Canadian Tax Foundation.

Toda, H.Y. and Yamamoto, T., 1995. Statistical inference in vector autoregressions with possibly integrated processes. Journal of econometrics, 66(1-2), pp.225-250.

Vousinas, G.L., 2017. Shadow economy and tax evasion. The Achilles heel of Greek economy. Determinants, effects and policy proposals. Journal of Money Laundering Control 20(14). pp.386-404.

Williams, C. C., & Horodnic, I. A. (2015). Self-employment, the informal economy and the marginalisation thesis. International Journal of Entrepreneurial Behavior & Research, 21 (2), pp 224-242.

Warde, I., 2007. The war on terror, crime and the shadow economy in the MENA countries. Mediterranean Politics, 12(2), pp.233-248. https://doi.org/10.1080/13629390701398033.