How large is Vietnam's informal economy?

The purpose of this article is to estimate the size of the informal economy in Vietnam, describe its development from 1995 to 2015, and assess the country's potential tax loss from this activity. The MIMIC model indicates that the informal economy accounts for between 15 per cent and 27 per cent of GDP. The informal economy has grown sharply in Vietnam since 2007, while its size has decreased in other comparable nations. Potential tax revenue lost annually amounts to between 3.3 per cent and 5 per cent of gross domestic product.     

The shadow economy beyond European public governance

The purpose of this paper is to try to analyze the Shadow Economy (SE) and its determinants by means of the Structural Equation Model (SEM)-Partial Least Squares (PLS). The overall topic of the SEM-PLS approach is controversially debated in the literature. In the past decades, the focus on the SE has increased and the range in the estimated size of this phenomenon is very divergent. By examining the effects of a set of indicators, economic theory often emphasizes the need for lower taxes and less regulation, but many other factors, such as administrative quality, are frequently neglected. Policy implications are discussed. Estimates for the SE as a percentage of GDP can be calculated and European countries are clustered according to the obtained results.     

Socio-demographics,political attitudes and informal sector employment: A cross-country analysis

In this paper, we empirically investigate the relationship between informal sector employment and micro-level socio-demographic characteristics, political acts and attitudes, and individual norms. Using self-reported individual micro-level data from the World Values Survey for seven developing countries (China, Ecuador, Egypt, Mexico, Peru, South Africa and Yemen), our cross-country regressions and principal component analysis reveal that socio-demographic characteristics of individuals are strong predictors of their informal sector employment. Our estimations further document that individual preferences for an economically strong, interventionist and egalitarian state and confidence in state and political institutions are positively and significantly correlated with informal sector employment, whereas variables associated with confidence in free market institutions and support for competition are negatively and significantly correlated with informal sector employment. We also show that individuals who participate either actively or inactively in peaceful and lawful political processes are significantly less likely to work in the informal sector. Finally, we document that individual norms, such as religiosity and tax morale, are negatively correlated with informal sector employment. Throughout our analysis, instead of having to rely on ad-hoc informality categorizations of third parties, we base our measurement of informal sector employment directly on the self-evaluation of individuals, who have the best information on the degree of their informality.     

Corruption, Growth, and Income Distribution: Are there Regional Differences?

This paper uses panel data from 61 countries at different stages of economic development over a 20-year period to investigate regional differences in the effect of corruption on economic growth and income distribution. Using two measures of corruption, we find that there are statistically significant regional differences in the growth and distributional impacts of corruption. The largest growth impact of corruption is found in African countries while OECD and Asian countries have the lowest growth impact. On the other hand, the largest distributional impact of corruption in found in Latin America. A 10% decrease in corruption increases the growth rate of income by about 1.7% in OECD and Asian countries, 2.6% in Latin American countries, and by 2.8% in African countries. A one standard deviation decrease in corruption decreases the gini coefficient of income distribution (0–1 scale) by 0.05 points, 0.14 points, 0.25 points, and 0.33 points in OECD, Asian, African, and Latin American countries, respectively. The results are robust to various specifications, measurement of corruption, measures of investment, as well as the conditioning variables. The results have interesting policy implications for economic growth, especially in low income countries with high rates of corruption.     

Does bond market development enhance the banking sector’s efficiency in resource allocation? Industry-level evidence from Korea

Korea’s financial system used to be bank-based, with banks playing the leading role in financing corporations. As highlighted by Park et al. (2019), however, bond markets have developed rapidly in Korea and other Asian countries. The corporate bond market competes with banks as a source of finance for large borrowers. As such, bond markets may affect banking sector operation, a process known as disintermediation. In this paper, we examine whether bond market development improves the efficiency of resource allocation in Korean bank lending. We propose two channels through which bond market development affects the efficiency of bank lending. Since the two channels have opposing effects on the efficiency of banking, the issue must be settled by empirical analysis. We find that bank loans are much less efficient than bond financing in allocating resources across industries. Furthermore, banks are particularly inefficient in resource allocation in industries that rely more on bond financing. This suggests that competition from bond financing does not improve allocative efficiency of bank loans.     

Does easy availability of cash affect corruption? Evidence from a panel of countries

Using annual panel data of 54 countries for the period 2005-14, we examine whether currency in circulation, both aggregate and in large denominations, affects the level of corruption in a country. Standard panel data models suggest that the ratios of (i) aggregate currency in circulation to M1 and, (ii) large denomination banknotes to M1 are both statistically significant determinants of corruption. Tests for reverse causality within a panel Granger framework reveal a uni-directional causality of corruption with the first variable, but a bi-directional one with the second. These findings suggest that a limitation in the supply of high-denomination banknotes, inter alia, could be a tool to fight corruption, and bring to the fore the important role of payment systems, extending an earlier study by Goel and Mehrotra (2012). The results also highlight that, along with the government, the central bank of an economy can also play an important role in the fight against corruption.