IDEAS home Printed from https://ideas.repec.org/a/eee/jpolmo/v42y2020i2p307-327.html
   My bibliography  Save this article

Economic liberalization in Egypt: A way to reduce the shadow economy?

Author

Listed:
  • Farzanegan, Mohammad Reza
  • Hassan, Mai
  • Badreldin, Ahmed Mohamed

Abstract

This study examines the relationship between economic liberalization and the size of the shadow economy in Egypt. We use annual data from 1976 to 2013 and show that economic liberalization policies in Egypt have a statistically significant decreasing effect on the size of the shadow economy as a percent of Gross Domestic Product (GDP). This effect is confirmed for both short- and long-term oriented economic liberalization policies. Based on our results, policies which promote trade and economic liberalization can reduce the extension of the shadow economy in Egypt. Therefore, we suggest conditioning international development assistance to Egypt on demonstrable policy actions with respect to economic liberalization.

Suggested Citation

  • Farzanegan, Mohammad Reza & Hassan, Mai & Badreldin, Ahmed Mohamed, 2020. "Economic liberalization in Egypt: A way to reduce the shadow economy?," Journal of Policy Modeling, Elsevier, vol. 42(2), pages 307-327.
    • Handle: RePEc:eee:jpolmo:v:42:y:2020:i:2:p:307-327
    DOI: 10.1016/j.jpolmod.2019.09.008
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0161893819301292
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jpolmod.2019.09.008?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
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Rafael La Porta & Andrei Shleifer, 2014. "Informality and Development," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 109-126, Summer.
    2. Schneider, Friedrich, 2005. "Shadow economies around the world: what do we really know?," European Journal of Political Economy, Elsevier, vol. 21(3), pages 598-642, September.
    3. Schneider Friedrich, 2010. "The Influence of Public Institutions on the Shadow Economy: An Empirical Investigation for OECD Countries," Review of Law & Economics, De Gruyter, vol. 6(3), pages 441-468, December.
    4. Christopher A. Sims & Tao Zha, 1999. "Error Bands for Impulse Responses," Econometrica, Econometric Society, vol. 67(5), pages 1113-1156, September.
    5. Dong, Bin & Dulleck, Uwe & Torgler, Benno, 2012. "Conditional corruption," Journal of Economic Psychology, Elsevier, vol. 33(3), pages 609-627.
    6. Clements, Michael P & Hendry, David F, 1995. "Forecasting in Cointegration Systems," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 127-146, April-Jun.
    7. Farzanegan, Mohammad Reza & Raeisian Parvari, Mozhgan, 2014. "Iranian-Oil-Free Zone and international oil prices," Energy Economics, Elsevier, vol. 45(C), pages 364-372.
    8. Ahmed Elsayed & Jackline Wahba, 2019. "Political change and informality : Evidence from the Arab Spring," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 27(1), pages 31-66, January.
    9. Utku Utkulu & Durmus Özdemir, 2005. "Does Trade Liberalization Cause a Long Run Economic Growth in Turkey," Economic Change and Restructuring, Springer, vol. 37(3), pages 245-266, September.
    10. Sajjad F. Dizaji & Mohammad Reza Farzanegan & Alireza Naghavi, 2016. "Political institutions and government spending behavior: theory and evidence from Iran," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(3), pages 522-549, June.
    11. repec:wsr:wpaper:y:2011:i:074 is not listed on IDEAS
    12. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    13. Zaki, Chahir & Selwaness, Irène, 2012. "Assessing the Impact of Trade Reforms on Informality in Egypt," Conference papers 332191, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    14. Axel Dreher & Christos Kotsogiannis & Steve McCorriston, 2009. "How do institutions affect corruption and the shadow economy?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(6), pages 773-796, December.
    15. Pablo Acosta & Leonardo Gasparini, 2007. "Capital Accumulation, Trade Liberalization, and Rising Wage Inequality: The Case of Argentina," Economic Development and Cultural Change, University of Chicago Press, vol. 55(4), pages 793-812, July.
    16. Koujianou Goldberg, Pinelopi & Pavcnik, Nina, 2003. "The response of the informal sector to trade liberalization," Journal of Development Economics, Elsevier, vol. 72(2), pages 463-496, December.
    17. Mohammad Reza Farzanegan & Bernd Hayo, 2019. "Sanctions and the shadow economy: empirical evidence from Iranian provinces," Applied Economics Letters, Taylor & Francis Journals, vol. 26(6), pages 501-505, March.
    18. World Bank, 2016. "World Development Indicators 2016," World Bank Publications - Books, The World Bank Group, number 23969.
    19. Buehn, Andreas & Schneider, Friedrich, 2008. "MIMIC Models, Cointegration and Error Correction: An Application to the French Shadow Economy," IZA Discussion Papers 3306, Institute of Labor Economics (IZA).
    20. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
    21. Friedrich Schneider & Andreas Buehn & Claudio Montenegro, 2010. "New Estimates for the Shadow Economies all over the World," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 443-461.
    22. Andreas Buehn & Mohammad Reza Farzanegan, 2012. "Smuggling around the world: evidence from a structural equation model," Applied Economics, Taylor & Francis Journals, vol. 44(23), pages 3047-3064, August.
    23. Eckhard Siggel, 2010. "The Indian informal sector: The impact of globalization and reform," International Labour Review, International Labour Organization, vol. 149(1), pages 93-105, March.
    24. Farzanegan, Mohammad Reza & Markwardt, Gunther, 2009. "The effects of oil price shocks on the Iranian economy," Energy Economics, Elsevier, vol. 31(1), pages 134-151, January.
    25. Carr, Marilyn. & Chen, Martha Alter., 2002. "Globalization and the informal economy : how global trade and investment impact on the working poor," ILO Working Papers 993541723402676, International Labour Organization.
    26. James H. Stock & Mark W. Watson, 2001. "Vector Autoregressions," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 101-115, Fall.
    27. Axel Dreher, 2006. "Does globalization affect growth? Evidence from a new index of globalization," Applied Economics, Taylor & Francis Journals, vol. 38(10), pages 1091-1110.
    28. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
    29. Farzanegan, Mohammad Reza & Markwardt, Gunther, 2018. "Development and pollution in the Middle East and North Africa: Democracy matters," Journal of Policy Modeling, Elsevier, vol. 40(2), pages 350-374.
    30. Aleman-Castilla, Benjamin, 2006. "The effect of trade liberalization on informality and wages: evidence from Mexico," LSE Research Online Documents on Economics 19779, London School of Economics and Political Science, LSE Library.
    31. Biswas, Amit K. & Farzanegan, Mohammad Reza & Thum, Marcel, 2012. "Pollution, shadow economy and corruption: Theory and evidence," Ecological Economics, Elsevier, vol. 75(C), pages 114-125.
    32. Hassan F. Gholipour & Mohammad Reza Farzanegan, 2018. "Institutions and the effectiveness of expenditures on environmental protection: evidence from Middle Eastern countries," Constitutional Political Economy, Springer, vol. 29(1), pages 20-39, March.
    33. Farzanegan, Mohammad Reza, 2009. "Illegal trade in the Iranian economy: Evidence from a structural model," European Journal of Political Economy, Elsevier, vol. 25(4), pages 489-507, December.
    34. Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo.
    35. Brock, Gregory & German-Soto, Vicente, 2017. "Regional industrial informality and efficiency in Mexico, 1990–2013," Journal of Policy Modeling, Elsevier, vol. 39(5), pages 928-941.
    36. Benjamin Aleman-Castilla, 2006. "The Effect of Trade Liberalization on Informality and Wages: Evidence from Mexico," CEP Discussion Papers dp0763, Centre for Economic Performance, LSE.
    37. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    38. Niklas Potrafke, 2015. "The Evidence on Globalisation," The World Economy, Wiley Blackwell, vol. 38(3), pages 509-552, March.
    39. Hoffman, Dennis L & Rasche, Robert H, 1996. "Assessing Forecast Performance in a Cointegrated System," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(5), pages 495-517, Sept.-Oct.
    40. Schneider,Friedrich & Enste,Dominik H., 2016. "The Shadow Economy," Cambridge Books, Cambridge University Press, number 9781316600894, November.
    41. Lee, Minsoo & Alba, Joseph D. & Park, Donghyun, 2018. "Intellectual property rights, informal economy, and FDI into developing countries," Journal of Policy Modeling, Elsevier, vol. 40(5), pages 1067-1081.
    42. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-144, January.
    43. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-392, May.
    44. Andreas Buehn & Mohammad Reza Farzanegan, 2013. "Impact of education on the shadow economy: Institutions matter," Economics Bulletin, AccessEcon, vol. 33(3), pages 2052-2063.
    45. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    46. Friedrich Schneider, 2009. "Size and Development of the Shadow Economy in Germany, Austria and Other oecd-Countries. Some Preliminary Findings," Revue économique, Presses de Sciences-Po, vol. 60(5), pages 1079-1116.
    47. Farzanegan, Mohammad Reza, 2011. "Oil revenue shocks and government spending behavior in Iran," Energy Economics, Elsevier, vol. 33(6), pages 1055-1069.
    48. Jay Pil Choi & Marcel Thum, 2005. "Corruption And The Shadow Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 817-836, August.
    49. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
    50. Loewe, Markus, 2013. "Industrial policy in Egypt 2004–2011," IDOS Discussion Papers 13/2013, German Institute of Development and Sustainability (IDOS).
    51. Atsuyuki Naka & David Tufte, 1997. "Examining impulse response functions in cointegrated systems," Applied Economics, Taylor & Francis Journals, vol. 29(12), pages 1593-1603.
    52. repec:ilo:ilowps:354172 is not listed on IDEAS
    53. Brock, Gregory, 2015. "The informal economy of Rostov Oblast on the eve of the Ukrainian refugee crisis," Journal of Policy Modeling, Elsevier, vol. 37(5), pages 789-803.
    54. Orviska, Marta & Caplanova, Anetta & Medved, Jozef & Hudson, John, 2006. "A cross-section approach to measuring the shadow economy," Journal of Policy Modeling, Elsevier, vol. 28(7), pages 713-724, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kumari, Khushboo & Ramachandran, Renjith, 2024. "The never-ending debate: Do FDI promote institutional change? Evidence from India and partner countries," Journal of Policy Modeling, Elsevier, vol. 46(2), pages 432-447.
    2. Aziz N. Berdiev & Brandon Gomes & James W. Saunoris, 2023. "Revisiting the nexus between globalisation and the shadow economy: Untying the influences of de jure versus de facto globalisation," The World Economy, Wiley Blackwell, vol. 46(1), pages 27-54, January.
    3. Muhammad Eid Balbaa, 2024. "Socio-Economic Indicators and their Impact on Sustainable Economic Development: An In-depth Analysis of Egypt," International Journal of Economics and Financial Issues, Econjournals, vol. 14(2), pages 136-145, March.
    4. Dokas, Ioannis & Panagiotidis, Minas & Papadamou, Stephanos & Spyromitros, Eleftherios, 2024. "The impact of the shadow economy on the direct-indirect tax mix: Can central banks’ independence mitigate the effect?," Journal of Policy Modeling, Elsevier, vol. 46(3), pages 475-493.
    5. Nguyen, Canh Phuc, 2022. "Does economic complexity matter for the shadow economy?," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 210-227.
    6. Debmalya Mukherjee & Saumyaranjan Sahoo & Satish Kumar, 2023. "Two Decades of International Business and International Management Scholarship on Africa: A Review and Future Directions," Management International Review, Springer, vol. 63(6), pages 863-909, December.
    7. Hongyun, Han & Radwan, Amira, 2021. "Economic and social structure and electricity consumption in Egypt," Energy, Elsevier, vol. 231(C).

    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. Mohammad Reza Farzanegan & Mai Hassan, 2017. "The Impact of Economic Globalization on the Shadow Economy in Egypt," CESifo Working Paper Series 6424, CESifo.
    2. Mohammad Reza Farzanegan & Pooya Alaedini & Khayyam Azizimehr, 2017. "Middle Class in Iran: Oil Rents, Modernization, and Political Development," MAGKS Papers on Economics 201756, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    3. Sajjad F. Dizaji & Mohammad Reza Farzanegan & Alireza Naghavi, 2016. "Political institutions and government spending behavior: theory and evidence from Iran," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(3), pages 522-549, June.
    4. Feige, Edgar L., 2015. "Reflections on the meaning and measurement of Unobserved Economies: What do we really know about the “Shadow Economy”?," MPRA Paper 68466, University Library of Munich, Germany.
    5. Mohammad Reza Farzanegan, 2014. "Military Spending and Economic Growth: The Case of Iran," Defence and Peace Economics, Taylor & Francis Journals, vol. 25(3), pages 247-269, June.
    6. Hassan, Mai, 2017. "The impact of the shadow economy on aid and economic development nexus in Egypt," MPRA Paper 80990, University Library of Munich, Germany.
    7. Aziz N. Berdiev & James W. Saunoris & Friedrich Schneider, 2018. "Give Me Liberty, or I Will Produce Underground: Effects of Economic Freedom on the Shadow Economy," Southern Economic Journal, John Wiley & Sons, vol. 85(2), pages 537-562, October.
    8. Sajjad Faraji Dizaji & Peter A G van Bergeijk, 2013. "Potential early phase success and ultimate failure of economic sanctions," Journal of Peace Research, Peace Research Institute Oslo, vol. 50(6), pages 721-736, November.
    9. Aziz N. Berdiev & Brandon Gomes & James W. Saunoris, 2023. "Revisiting the nexus between globalisation and the shadow economy: Untying the influences of de jure versus de facto globalisation," The World Economy, Wiley Blackwell, vol. 46(1), pages 27-54, January.
    10. Sajjad Faraji Dizaji, 2019. "Trade openness, political institutions, and military spending (evidence from lifting Iran’s sanctions)," Empirical Economics, Springer, vol. 57(6), pages 2013-2041, December.
    11. Zahra Zarepour, 2022. "Short- and long-run macroeconomic impacts of the 2010 Iranian energy subsidy reform," SN Business & Economics, Springer, vol. 2(10), pages 1-32, October.
    12. Mai HASSAN & Friedrich SCHNEIDER, 2016. "Modelling the Egyptian Shadow Economy: A MIMIC model and A Currency Demand approach," Journal of Economics and Political Economy, KSP Journals, vol. 3(2), pages 309-339, June.
    13. Mai Hassan & Friedrich Schneider, 2016. "Modelling the Egyptian Shadow Economy: A Currency Demand and A MIMIC Model Approach," CESifo Working Paper Series 5727, CESifo.
    14. 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.
    15. Psychoyios, Dimitrios & Missiou, Olympia & Dergiades, Theologos, 2021. "Energy based estimation of the shadow economy: The role of governance quality," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 797-808.
    16. Mohammad Reza Farzanegan & Tim Krieger, 2018. "Oil Revenues Shocks and Inequality in Iran," Working Papers 1226, Economic Research Forum, revised 18 Sep 2018.
    17. 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.
    18. 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.
    19. Mohammad Reza Farzanegan & Sajjad Faraji Dizaji, 2014. "Political Institutions and Government Spending Behavior in Iran," MAGKS Papers on Economics 201403, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    20. Omid Zamani & Mohammad Reza Farzanegan & Jens-Peter Loy & Majid Einian, 2021. "The Impacts of Energy Sanctions on the Black-Market Premium: Evidence from Iran," Economics Bulletin, AccessEcon, vol. 41(2), pages 432-443.

    More about this item

    Keywords

    Shadow economy; Economic liberalization; Time-series analysis; Arab Spring; Egypt;
    All these keywords.

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

    Statistics

    Access and download statistics

    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:eee:jpolmo:v:42:y:2020:i:2:p:307-327. 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505735 .

    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.