Shadow Economy and Economic Growth: The Role of Institutional Quality
Shadow Economy and Economic Growth: The Role of Institutional Quality

Summary/Abstract: This paper focuses on analyzing the impact of the shadow economy on economic growth in ASE-AN countries. In particular, the authors examine the role of institutional quality in the effects of theshadow economy on economic growth, which means that this study is different from previousstudies. The data sample was collected in 10 ASEAN countries (Brunei Darussalam, Indonesia, Cam-bodia, Lao PDR, Myanmar, Malaysia, the Philippines, Singapore, Thailand, and Vietnam) from 2002to 2019. Regarding the analytical method, the authors used a combination of threshold effectsand the system - GMM (Generalized Method of Moments) method. The estimation results show athreshold value of institutional quality (λ = 21.23%). Accordingly, shadow economy negatively af-fects economic growth. This shows that improving institutional quality can help ASEAN countrieslimit the negative impact of the shadow economy on economic growth. In addition, the authorsalso find a positive effect of the control variables, such as government expenditure, foreign directinvestment, and population growth, on economic growth. These research results are empirical evi-dence in ASEAN countries; thus, the findings in this study have important implications for ASEANcountries and other countries with similar characteristics.

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