Foreign Direct Investment and Shadow Economy: A Causality Analysis Using Panel Data

Nikopour, Hesam and Shah Habibullah, Muzafar and Schneider, Friedrich and Law, Siong Hook (2009): Foreign Direct Investment and Shadow Economy: A Causality Analysis Using Panel Data.

Abstract

The present paper investigates the link between the shadow economy and FDI using the Granger panel causality test. For that purpose we use the shadow economy and FDI data for 145 countries of five data points 1999/2000, 2001/2002, 2002/2003, 2003/2004 and 2004/2005. The system GMM estimation results show that FDI causes the shadow economy and vice versa. The empirical evidence supports the hypotheses that higher FDI causes lower shadow economy and higher shadow economy causes higher FDI.

• Item Type: MPRA Paper
• Language: English
• Keywords: Shadow economy, FDI, panel causality
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models

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