Feige, Edgar L. and Urban, Ivica (2007): Measuring Underground (Unobserved, Non-Observed, Unrecorded) Economies in Transition Countries: Can We Trust GDP?
Download (1MB) | Preview
This paper compiles alternative estimates of underground economies in twenty five transition countries during the transition decade and finds a disturbing lack of convergence between them, calling into question the reliability of GDP figures (which in varying degrees now include non-transparent imputations for the “non-observed economy”) as well as the macro model estimates of the unrecorded economy. A corollary of this finding is that substantive results from many studies examining the consequences of the radical transition from planned to market economies must be viewed with considerable skepticism. Underground (unobserved, non-observed, unrecorded) economic activities play a major role in transition economies. Evaluations of the success and failure of the transition experience should be based on estimates of total economic activity (TEA) namely, recorded plus unrecorded economic activity. We examine the conceptual and empirical relationships between new National Income and Product Accounts (NIPA) methods for obtaining “exhaustive” measures of total economic activity and the two most popular macro-model approaches (electric consumption and currency ratio models) for estimating the size and growth of the unrecorded sector. Our updated empirical results detailing the size and trajectory of unrecorded activities obtained from different estimation methods reveal a disturbing lack of convergence. Until these important differences are resolved, investigations of the relationship between economic reforms and economic outcomes during the transition decade must be viewed with considerable caution. Given the shortcomings of conventional macro model estimates of the underground economy and the lack of transparency and consistency of NOE estimates, it is high time that the profession acknowledges how little we really know about underground economies and their causes and consequences.
|Item Type:||MPRA Paper|
|Original Title:||Measuring Underground (Unobserved, Non-Observed, Unrecorded) Economies in Transition Countries: Can We Trust GDP?|
|Keywords:||Key words: Underground, unrecorded, unobserved, non-observed, NOE, hidden, informal, shadow, GDP, national accounts, transition economies|
|Subjects:||O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development
P - Economic Systems > P2 - Socialist Systems and Transitional Economies > P24 - National Income, Product, and Expenditure; Money; Inflation
E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E26 - Informal Economy; Underground Economy
E - Macroeconomics and Monetary Economics > E0 - General > E01 - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
|Depositing User:||Edgar L. Feige|
|Date Deposited:||26. Feb 2008 18:16|
|Last Modified:||01. Mar 2013 19:59|
Alexeev, M and W. Pyle (2003) A Note on Measuring the Unofficial Economy in the Former Soviet Republics, Economics of Transition 11(1), 1-23.
Berg, A., Borensztein, E., Sahay, R., and J. Zettelmeyer (1999) The Evolution of Output in Transition Economies: Explaining the Differences, IMF Working Paper WP/99/73.
Bloem, A and M. Shrestha (2000) Comprehensive Measures of GDP and the Unrecorded Economy, IMF Working Paper WP/00/204.
Breusch, T. (2005) School of Economics, Faculty of Economics and Commerce Australian National University, http://18.104.22.168/eps/em/papers/0507/0507003.pdf. 1-35.
Breusch, T. (2006) Size, Causes and Consequences of the Underground Economy: An International Perspective Economic Record, Vol. 82(259), December. 492-494.
Campos, N. and F. Coricelli (2002) Growth in Transition: What We Know, What We Don’t, and What We Should, Journal of Economic Literature Vol.XL September. 793-836.
Ciupagea, C (2001) The Size and Economic Determinants of the Informal Economy in Romania, Institute of World Economy, Bucharest.
Dobozi, I and G. Pohl (1995) Real Output Decline in Transition Economies-Forget GDP, Try Power Consumption Data, Transition Newsletter 6:1-2, 17-18.
Doyle, B. (2000) Here, Dollars, Dollars… Estimating Currency Demand and Worldwide Currency Substitution, International Finance Discussion Paper No. 657, Board of Governors of the Federal Reserve System, Washington, DC.
Eilat, Y. and C. Zinnes, (2002) The Evolution of the Shadow Economy in Transition Countries: the Consequences for Economic Growth and Donor Assistance, World Development, July.
European Bank for Reconstruction and Development (1999) Transition Report: ten years of transition, London, UK
European Bank for Reconstruction and Development (2001) Transition Report, London, UK
Feige, E. (1979) How Big is the Irregular Economy?, Challenge, 22, 5-13
Feige, E. (1980) A New Perspective on Macroeconomic Phenomena: The Theory and Measurement of the Unobserved Sector of the United States Economy: Causes Consequences and Implications, Paper Presented at the American Economics Association Meetings.
Feige, E. (1986) A Re-examination of the Underground Economy in the United States, IMF Staff Papers, 33/4, 768-781.
Feige E. (1989) The Underground Economies: Tax Evasion and Information Distortion, Cambridge University Press, Cambridge, UK.
Feige, E. (1990) Defining and Estimating Underground and Informal Economies: The New Institutional Approach, World Development 18, 7 July.
Feige, E. (1994) The Underground Economy and the Currency Enigma Public Finance and Irregular Activity, Supplement to Public Finance/Finances Publiques, 49, Reprinted in G. Fiorentini and S. Zamagni (eds) The Economics of Corruption and Illegal Markets, The International Library of Critical Writings in Economics, Edward Elgar Publishing Limited, 1999
Feige, E. (1996) Overseas Holdings of U.S. Currency and the Underground Economy in S. Pozo (ed) Exploring the Underground Economy, W.E. Upjohn Institute for Employment Research, 5-62.
Feige, E. (1997) Underground Activity and Institutional Change: Productive, Protective, and Predatory Behavior in Transition Economies, in Nelson, Tilley and Walker (eds) Transforming Post-Communist Political Economies, National Academy Press, Washington D.C. 19-34
Feige, E. (2003) The Dynamics of Currency Substitution, Asset Substitution and de facto Dollarization and Euroization in Transition Countries, Comparative Economic Studies 45,3 September 358-383
Feige, E. and I. Urban, (2003) Estimating the Size and Growth on Unrecorded Economic Activity in Transition Countries: A Re-evaluation of Electric Consumption Method Estimates and their Implications, William Davidson Institute Working paper No. 636
Friedman, E., Johnson, S., Kaufmann, D. and Zoido-Lobaton, (2000): Dodging the Grabbing Hand: The Determinants of Unofficial Activity in 69 Countries, Journal of Public Economics 76, 459-493.
Gërxhani, K. (2004) Tax evasion in transition: Outcome of an institutional clash? Testing Feige’s conjecture in Albania, European Economic Review 48 (4): 729-745
Gutmann, P. (1977) The Subterranean Economy, Financial Analysts Journal 35: 26-34.
Havrylyshyn, O. (2001) Recovery and Growth in Transition: A Decade of Evidence, IMF Staff Papers 48, 53-87.
Havrylyshyn, O. (2004) Uncharted waters, pirate raids, and safe havens: A parsimonious model of transition progress, BOFIT/CEFIR Workshop on Transition Economics, Helsinki.
IMF (2000) World Economic Outlook, Washington, DC.
Johnson, S., Kaufmann, D. and A. Schleifer (1997) The Unofficial Economy in Transition, Brookings Papers on Economic Activity 2 159-239, Washington, D.C.
Johnson, S, Kaufmann, D. and P. Zoido-Lobaton (1998) Regulatory Discretion and the Unofficial Economy, American Economic Review, 88(2) 387-392
Kaufmann D. and A. Kaliberda (1996) Integrating the Unofficial Economy into the Dynamics of Post-Socialist Economies, World Bank Policy Research Working Paper, No. 1691.
Kudabaev, Z. (2004) Estimation of non-observed economy in Kyrgyzstan, OECD/ESCAP/ADB Workshop on Assessing and Improving Statistical Quality: Measuring the Non-observed Economy, Bangkok 1-6
Lacko, M. (1999) Electricity Intensity and the Unrecorded Economy in Post-Socialist Countries in Feige and Ott (eds.) Underground Economies in Transition, Ashgate, Brookfield, USA 141-165.
Lacko, M. (2000) Hidden Economy- an Unknown Quantity? Comparative Analysis of Hidden Economies in Transition Countries, 1989-1995 Economics of Transition, 8 (1), 117-149.
Mosakova, I. (2001) Estimation of Non-Observed Economy: The Statistical Practices in Russia, October. http://www.oecd.org/searchResult/0,2665,en_2649_37445_1_1_1_1_37445,00.html
OECD (2002) Measuring the Non-Observed Economy A Handbook, Paris France.
OECD (2004) The Informal Economy in Albania: Analysis and Policy Recommendations, Report prepared by the OECD - Investment Compact for the Ministry of Economy of Albania, Published with the support of the Central European Initiative (CEI, December 1-145
Porter, R and R. Judson (1996) The Location of U.S. Currency: How Much is Abroad? Federal Reserve Bulletin, 82 (October): 883-903.
Rogoznikova, T. (2004) Experience of Uzbekistan in Measuring the Non-observed Economy, NOE: Issues of Measurement Conference, St. Petersburg (Russian)
Sachs, J., Zinnes, C. and Y. Eilat (2001) Patterns and Determinants of Economic Reform in Transition Economies: 1900-1998, CAER II Discussion paper 61, Harvard Institute for International Development. Cambridge, MA.
Seitz,F. 1995 The Circulation of Deutsche Mark Abroad, Economic Research Group of the Deutsche Bundesbank, Discussion paper 1/95, Frankfurt a M.
Stix, H. (2001) Survey results about foreign currency holdings in five Central and Eastern European countries. CeSifo Forum, vol 3.
Tanzi, V. (1980) The Underground Economy in the United States: Estimates and Implications, Banco Nazional del Lavoro, 135:4, pp 427-453.
Tanzi, V. (1983) The Underground Economy In the United States: Annual Estimates, 1930-1980, IMF Staff Papers, 30:2, pp 283-305.
United Nations (2003) Non-Observed Economy in National Accounts: Survey of National Practices, United Nations Economic Commission for Europe, Geneva.
World Bank (2002) Transition: The First Ten Years, Analysis and Lessons for Eastern Europe and the Former Soviet Union Washington, D.C.