IDEAS home Printed from https://ideas.repec.org/a/aid/journl/v3y2020i4p131-146.html
   My bibliography  Save this article

Institutional Quality and Shadow Economy: An Investment Potential Evaluation Model

Author

Listed:
  • Oleksii Lyulyov

    (Sumy State University, Sumy, Ukraine)

  • Bogdan Moskalenko

    (Sumy State University, Sumy, Ukraine)

Abstract

The article summarizes some arguments as regards the scientific challenge on improving approaches to evaluating the country’s investment potential. The main objective of the research is to identify the features and perspectives of applying the variables such as the shadow economy and the integrated institutional quality index into a model evaluating the country’s investment potential. To solve this task, systematization of the related theoretical and methodological materials has been done. The methodological tools of the research are carried out in the following logical sequence: systematization of existing statistical methods for estimating the shadow economy; time data series analysis; and regression analysis. The scope of the shadow economy could be estimated as a dependent variable, with both its determinants and indicators detected and measured. The macro methods, such as Multiple Indicators Multiple Causes (MIMIC) are suitable approaches from an econometric standpoint to evaluate the shadow economy. Institutional quality is crucially an important variable for empirical studies related to evaluating the country’s investment potential. The proposed approach considers significance and direction of the six Worldwide Government Indicators’ (WGI) impact on foreign direct investment net inflow, eliminating the issue of their multicollinearity. However, political instability and high frequency of foreign and domestic policy changes during the last decades distort statistical significance of the results obtained. FDI inflow, as well as the quality of governance, and the shadow economy, is influenced by many other factors, both internal and external, so to build a qualitative model for evaluating the country’s investment potential of the national economy it is necessary to expand the set of factors for analysis. The results of the research can be useful for a more accurate investment potential evaluation on the macroeconomic level, and forecasting foreign direct investment inflows for the following time periods.

Suggested Citation

  • Oleksii Lyulyov & Bogdan Moskalenko, 2020. "Institutional Quality and Shadow Economy: An Investment Potential Evaluation Model," Virtual Economics, The London Academy of Science and Business, vol. 3(4), pages 131-146, October.
    • Handle: RePEc:aid:journl:v:3:y:2020:i:4:p:131-146
    DOI: 10.34021/ve.2020.03.04(7)
    as

    Download full text from publisher

    File URL: https://virtual-economics.eu/index.php/VE/article/download/88/67
    Download Restriction: no
    File URL: https://libkey.io/10.34021/ve.2020.03.04(7)?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Nikopour, Hesam & Shah Habibullah, Muzafar & Schneider, Friedrich & Law, Siong Hook, 2009. "Foreign Direct Investment and Shadow Economy: A Causality Analysis Using Panel Data," MPRA Paper 14485, University Library of Munich, Germany.
    2. Aparna Mathur & Kartikeya Singh, 2013. "Foreign direct investment, corruption and democracy," Applied Economics, Taylor & Francis Journals, vol. 45(8), pages 991-1002, March.
    3. Mohammad Ali & Alok K. Bohara, 2017. "How Does FDI Respond to the Size of Shadow Economy: An Empirical Analysis under a Gravity Model Setting," International Economic Journal, Taylor & Francis Journals, vol. 31(2), pages 159-178, April.
    4. Leandro Medina & Mr. Friedrich Schneider, 2018. "Shadow Economies Around the World: What Did We Learn Over the Last 20 Years?," IMF Working Papers 2018/017, International Monetary Fund.
    5. Dabla-Norris, Era & Gradstein, Mark & Inchauste, Gabriela, 2008. "What causes firms to hide output? The determinants of informality," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 1-27, February.
    6. James Alm & Abel Embaye, 2013. "Using Dynamic Panel Methods to Estimate Shadow Economies Around the World, 1984-2006," Working Papers 1303, Tulane University, Department of Economics.
    7. Henryk Dzwigol, 2019. "The concept of the system approach of the enterprise restructuring process," Virtual Economics, The London Academy of Science and Business, vol. 2(4), pages 46-70, October.
    8. James Alm & Abel Embaye, 2013. "Using Dynamic Panel Methods to Estimate Shadow Economies Around the World, 1984–2006," Public Finance Review, , vol. 41(5), pages 510-543, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cong Minh Huynh & Vu Hong Thai Nguyen & Hoang Bao Nguyen & Phuc Canh Nguyen, 2020. "One-way effect or multiple-way causality: foreign direct investment, institutional quality and shadow economy?," International Economics and Economic Policy, Springer, vol. 17(1), pages 219-239, February.
    2. Luc Jacolin & Joseph Keneck Massil & Alphonse Noah, 2021. "Informal sector and mobile financial services in emerging and developing countries: Does financial innovation matter?," The World Economy, Wiley Blackwell, vol. 44(9), pages 2703-2737, September.
    3. Joseph Keneck-Massil & Alphonse Noah, 2019. "Shadow economy and educational systems in Africa," Economics Bulletin, AccessEcon, vol. 39(2), pages 1467-1478.
    4. Tran, My Thi Ha, 2021. "Public Sector Management And Corruption In Asean Plus Six," OSF Preprints stxw4, Center for Open Science.
    5. Ha, Le Thanh & Dung, Hoang Phuong & Thanh, To Trung, 2021. "Economic complexity and shadow economy: A multi-dimensional analysis," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 408-422.
    6. Nedra Baklouti & Younes Boujelbene, 2020. "A simultaneous equation model of economic growth and shadow economy: Is there a difference between the developed and developing countries?," Economic Change and Restructuring, Springer, vol. 53(1), pages 151-170, February.
    7. Phoebe W. Ishak & Mohammad Reza Farzanegan, 2022. "Oil price shocks, protest, and the shadow economy: Is there a mitigation effect?," Economics and Politics, Wiley Blackwell, vol. 34(2), pages 298-321, July.
    8. Stephen Esaku, 2022. "Institutionalized democracy and the shadow economy in the short- and long-run: empirical analysis from Uganda," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-12, December.
    9. Alvarado, Rafael & Tillaguango, Brayan & López-Sánchez, Michelle & Ponce, Pablo & Işık, Cem, 2021. "Heterogeneous impact of natural resources on income inequality: The role of the shadow economy and human capital index," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 690-704.
    10. Christoforos Andreou & Elena Andreou & Stephanie Michael & George Syrichas, 2021. "The Shadow Economy in Cyprus: Evidence from the Electricity Consumption and Currency Demand Methods," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 15(1), pages 46-74, June.
    11. Cong Minh Huynh & Hoai Nam Tran, 2021. "Moderating effects of corruption and informality on the fiscal decentralization—economic growth nexus: Insights from OECD countries," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 92(2), pages 355-373, June.
    12. Gamal, Awadh Ahmed Mohammed & Rambeli, Norimah & Abdul Jalil, Norasibah & Kuperan Viswanathan, K., 2019. "A modified Currency Demand Function and the Malaysian shadow economy: Evidence from ARDL bounds testing approach," Economic Analysis and Policy, Elsevier, vol. 64(C), pages 266-281.
    13. Onwuka , Ifeanyi & Ayeni, Emmanuel, 2023. "Financial Development and Shadow Economy in Africa: Evidence from Panel Quantile Regression," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 48(2), pages 123-141, June.
    14. Achim, Monica Violeta & Postea, Mihaela Maria & Noja, Gratiela Georgiana, 2024. "New estimate of shadow economy based on the total energy consumption. Evidence from the European Union countries," Energy Economics, Elsevier, vol. 130(C).
    15. Melingui Bate Adalbert Abraham Ghislain, 2022. "Does the diffusion of information and communication technologies affect the shadow economy in Africa?," African Development Review, African Development Bank, vol. 34(4), pages 513-526, December.
    16. Friedrich Schneider, 2022. "New COVID-related results for estimating the shadow economy in the global economy in 2021 and 2022," International Economics and Economic Policy, Springer, vol. 19(2), pages 299-313, May.
    17. Mykolas Navickas & Vytautas JuÅ¡Ä ius & Valentinas Navickas, 2019. "Determinants of Shadow Economy in Eastern European Countries," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 66(1), pages 1-14, March.
    18. Bennihi, Aymen Salah & Bouriche, Lahcene & Schneider, Friedrich, 2021. "The informal economy in Algeria: New insights using the MIMIC approach and the interaction with the formal economy," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 470-491.
    19. KOUAKOU, Dorgyles C.M. & YEO, Kolotioloma I.H., 2023. "Can innovation reduce the size of the informal economy? Econometric evidence from 138 countries," MPRA Paper 119264, University Library of Munich, Germany.
    20. Ajide, Kazeem Bello & Ridwan, Lanre Ibrahim, 2023. "Does natural resource wealth hinder or promote activity of the shadow markets in africa?," Resources Policy, Elsevier, vol. 85(PA).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aid:journl:v:3:y:2020:i:4:p:131-146. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Aleksy Kwilinski (email available below). General contact details of provider: https://edirc.repec.org/data/akwilin.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.