Mutual Effects of Indicators of Financial Development and Underground Economy Panel Vector Error Correction Model (Panel-VECM)

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ABOUNOORI ESMAIEL; SHIRINBAKHSH SHAMSOLAH; Kamarei Javad

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Journal: ECONOMIC STRATEGY Year:2018 | Volume:7 | Issue:26 Page(s): 83-116

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Title

Mutual Effects of Indicators of Financial Development and Underground Economy Panel Vector Error Correction Model (Panel-VECM)

Author(s)

ABOUNOORI ESMAIEL | SHIRINBAKHSH SHAMSOLAH | Kamarei Javad | Issue Writer Certificate

Keywords

Financial DevelopmentQ2

Underground EconomyQ2

Panel Vector Error Correction ModelQ1

Abstract

In this paper, we present a theoretical and empirical study of the relationship between Financial Development and the size of the Underground Economy. Investors can reduce the cost of credit by disclosing part of their assets as collateral but will also face higher tax payments as a result of the disclosure. Financial Development reduces the size of the Underground Economy. In contrast, the emergence of the Underground Economy can also affect the development of the financial sector. Therefore, one of the concerns of policymakers and executives is to identify the size of the Underground Economy and to try to reduce its size and control (especially through the financial sector and to generate benefits and costs for firms operating in formal or informal areas). With this in mind, this study attempts to examine the relationship between Financial Development and the Underground Economy in 34 selected countries, including Iran, from 1995 to 2015. The results show that all the error correction coefficients are negative and each part of the error is corrected for long run equilibrium. Also, private sector credit in the first period has an incremental effect but in the second period it has an effect on the size of the Underground Economy, which demonstrates the higher efficiency of private sector credit over time.

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APA: Copy

ABOUNOORI, ESMAIEL, SHIRINBAKHSH, SHAMSOLAH, & Kamarei, Javad. (2018). Mutual Effects of Indicators of Financial Development and Underground Economy Panel Vector Error Correction Model (Panel-VECM). ECONOMIC STRATEGY, 7(26 ), 83-116. SID. https://sid.ir/paper/233875/en

Vancouver: Copy

ABOUNOORI ESMAIEL, SHIRINBAKHSH SHAMSOLAH, Kamarei Javad. Mutual Effects of Indicators of Financial Development and Underground Economy Panel Vector Error Correction Model (Panel-VECM). ECONOMIC STRATEGY[Internet]. 2018;7(26 ):83-116. Available from: https://sid.ir/paper/233875/en

IEEE: Copy

ESMAIEL ABOUNOORI, SHAMSOLAH SHIRINBAKHSH, and Javad Kamarei, “Mutual Effects of Indicators of Financial Development and Underground Economy Panel Vector Error Correction Model (Panel-VECM),” ECONOMIC STRATEGY, vol. 7, no. 26 , pp. 83–116, 2018, [Online]. Available: https://sid.ir/paper/233875/en

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