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Investigating The Influence Of The Shadow Economy On Non-Performing Loans In European Economies: A Panel Gmm Analysis

Author

Listed:
  • CEPOI, Cosmin Octavian

    (“Victor Slăvescu” Centre for Financial and Monetary Research, Romanian Academy, Bucharest.)

  • DUMITRESCU, Bogdan Andrei

    (“Victor Slăvescu” Centre for Financial and Monetary Research, Romanian Academy, Bucharest.)

  • LEONIDA, Ionel

    (“Victor Slăvescu” Centre for Financial and Monetary Research, Romanian Academy, Bucharest.)

Abstract

In this paper, we use panel data containing all EU27 countries from the 2010 to 2022 period to investigate the impact exhibited by the shadow economy on the level of NPLs. Based on a Panel GMM approach we reveal a negative connection, indicating that Countries with larger informal sectors often exhibit lower reported NPLs, possibly due to less stringent oversight. Additionally, economic growth correlates negatively with NPLs, while rising unemployment is associated with increased NPL levels. However, factors like inflation, political stability, and government debt did not show significant correlations with NPLs in our analysis. The topic holds significant relevance for both macro-stability policymakers and commercial banks aiming to understand how changes in fiscal and budgetary conditions impact the quality of credit portfolios.

Suggested Citation

  • CEPOI, Cosmin Octavian & DUMITRESCU, Bogdan Andrei & LEONIDA, Ionel, 2023. "Investigating The Influence Of The Shadow Economy On Non-Performing Loans In European Economies: A Panel Gmm Analysis," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 27(4), pages 46-59, December.
    • Handle: RePEc:vls:finstu:v:27:y:2023:i:4:p:46-59
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    More about this item

    Keywords

    credit portfolio quality; inflation; political stability; informal economy; difference GMM;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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