IDEAS home Printed from https://ideas.repec.org/a/wly/jintdv/v34y2022i3p636-651.html
   My bibliography  Save this article

Shadow economy threshold effect in the relationship finance–growth in Tunisia: A nonlinear autoregressive distributed lag approach

Author

Listed:
  • Khalil Mhadhbi
  • Chokri Terzi

Abstract

This paper tracks the financial growth in Tunisia over the period 1984–2016 with a special focus on the shadow economy. Using Tanzi's measures, we worked on a nonlinear autoregressive distributed lag (NARDL) model to test the impact of the informal economy. The results suggest that the long‐run effect of the financial growth becomes negative if there is a positive change in the shadow economy and the opposite holds. While changes in the shadow economy have no significant influence on the links between financial development and economic growth in the short run, they play a significant role in the Tunisian economy in the long run.

Suggested Citation

  • Khalil Mhadhbi & Chokri Terzi, 2022. "Shadow economy threshold effect in the relationship finance–growth in Tunisia: A nonlinear autoregressive distributed lag approach," Journal of International Development, John Wiley & Sons, Ltd., vol. 34(3), pages 636-651, April.
    • Handle: RePEc:wly:jintdv:v:34:y:2022:i:3:p:636-651
    DOI: 10.1002/jid.3609
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/jid.3609
    Download Restriction: no
    File URL: https://libkey.io/10.1002/jid.3609?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. Balke, Nathan S & Fomby, Thomas B, 1997. "Threshold Cointegration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 627-645, August.
    2. Ibrahim, Muazu & Alagidede, Paul, 2018. "Nonlinearities in financial development–economic growth nexus: Evidence from sub-Saharan Africa," Research in International Business and Finance, Elsevier, vol. 46(C), pages 95-104.
    3. Beck, Thorsten & Levine, Ross, 2004. "Stock markets, banks, and growth: Panel evidence," Journal of Banking & Finance, Elsevier, vol. 28(3), pages 423-442, March.
    4. Mohsen Bahmani-Oskooee & Ilir Miteza & Altin Tanku, 2020. "Exchange rate changes and money demand in Albania: a nonlinear ARDL analysis," Economic Change and Restructuring, Springer, vol. 53(4), pages 619-633, November.
    5. De Gregorio, Jose & Guidotti, Pablo E., 1995. "Financial development and economic growth," World Development, Elsevier, vol. 23(3), pages 433-448, March.
    6. Capasso, Salvatore & Jappelli, Tullio, 2013. "Financial development and the underground economy," Journal of Development Economics, Elsevier, vol. 101(C), pages 167-178.
    7. Benkraiem, Ramzi & Lahiani, Amine & Miloudi, Anthony & Shahbaz, Muhammad, 2019. "The asymmetric role of shadow economy in the energy-growth nexus in Bolivia," Energy Policy, Elsevier, vol. 125(C), pages 405-417.
    8. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    9. Philip Cagan, 1958. "The Demand for Currency Relative to Total Money Supply," NBER Chapters, in: The Demand for Currency Relative to Total Money Supply, pages 1-37, National Bureau of Economic Research, Inc.
    10. Jean Arcand & Enrico Berkes & Ugo Panizza, 2015. "Too much finance?," Journal of Economic Growth, Springer, vol. 20(2), pages 105-148, June.
    11. Uddin, Gazi Salah & Shahbaz, Muhammad & Arouri, Mohamed & Teulon, Frédéric, 2014. "Financial development and poverty reduction nexus: A cointegration and causality analysis in Bangladesh," Economic Modelling, Elsevier, vol. 36(C), pages 405-412.
    12. Chowdhury, Mohammad Ashraful Ferdous & Meo, Muhammad Saeed & Uddin, Ajim & Haque, Md. Mahmudul, 2021. "Asymmetric effect of energy price on commodity price: New evidence from NARDL and time frequency wavelet approaches," Energy, Elsevier, vol. 231(C).
    13. Kar, Muhsin & NazlIoglu, Saban & AgIr, Hüseyin, 2011. "Financial development and economic growth nexus in the MENA countries: Bootstrap panel granger causality analysis," Economic Modelling, Elsevier, vol. 28(1-2), pages 685-693, January.
    14. 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.
    15. Fase, M. M. G. & Abma, R. C. N., 2003. "Financial environment and economic growth in selected Asian countries," Journal of Asian Economics, Elsevier, vol. 14(1), pages 11-21, February.
    16. Arestis, Philip & Demetriades, Panicos O, 1997. "Financial Development and Economic Growth: Assessing the Evidence," Economic Journal, Royal Economic Society, vol. 107(442), pages 783-799, May.
    17. Ceyhun Elgin & Burak Uras, 2013. "Is informality a barrier to financial development?," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(3), pages 309-331, August.
    18. repec:ipg:wpaper:2014-569 is not listed on IDEAS
    19. Odhiambo, Nicholas M., 2008. "Financial depth, savings and economic growth in Kenya: A dynamic causal linkage," Economic Modelling, Elsevier, vol. 25(4), pages 704-713, July.
    20. Berdiev, Aziz N. & Saunoris, James W., 2016. "Financial development and the shadow economy: A panel VAR analysis," Economic Modelling, Elsevier, vol. 57(C), pages 197-207.
    21. Herwartz, Helmut & Walle, Yabibal M., 2014. "Determinants of the link between financial and economic development: Evidence from a functional coefficient model," Economic Modelling, Elsevier, vol. 37(C), pages 417-427.
    22. 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.
    23. Greenwood, Jeremy & Smith, Bruce D., 1997. "Financial markets in development, and the development of financial markets," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 145-181, January.
    24. Luintel, Kul B. & Khan, Mosahid, 1999. "A quantitative reassessment of the finance-growth nexus: evidence from a multivariate VAR," Journal of Development Economics, Elsevier, vol. 60(2), pages 381-405, December.
    25. Atil, Ahmed & Lahiani, Amine & Nguyen, Duc Khuong, 2014. "Asymmetric and nonlinear pass-through of crude oil prices to gasoline and natural gas prices," Energy Policy, Elsevier, vol. 65(C), pages 567-573.
    26. Nedra Baklouti & Younes Boujelbene, 2019. "The Economic Growth–Inflation–Shadow Economy Trilogy: Developed Versus Developing Countries," International Economic Journal, Taylor & Francis Journals, vol. 33(4), pages 679-695, October.
    27. Henri Njangang & Luc Ndeffo Nembot & Joseph Pasky Ngameni, 2020. "Does financial development reduce the size of the informal economy in sub‐Saharan African countries?," African Development Review, African Development Bank, vol. 32(3), pages 375-391, September.
    28. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 717-737.
    29. Straub, Stéphane, 2005. "Informal sector: The credit market channel," Journal of Development Economics, Elsevier, vol. 78(2), pages 299-321, December.
    30. Berthelemy, Jean-Claude & Varoudakis, Aristomene, 1996. "Economic Growth, Convergence Clubs, and the Role of Financial Development," Oxford Economic Papers, Oxford University Press, vol. 48(2), pages 300-328, April.
    31. Niloy Bose & Salvatore Capasso & Martin Andreas Wurm, 2012. "The impact of banking development on the size of shadow economies," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 39(6), pages 620-638, October.
    32. James B. Ang, 2008. "A Survey Of Recent Developments In The Literature Of Finance And Growth," Journal of Economic Surveys, Wiley Blackwell, vol. 22(3), pages 536-576, July.
    33. Jareño, Francisco & González, María de la O. & López, Raquel & Ramos, Ana Rosa, 2021. "Cryptocurrencies and oil price shocks: A NARDL analysis in the COVID-19 pandemic," Resources Policy, Elsevier, vol. 74(C).
    34. Canh, Nguyen Phuc & Thanh, Su Dinh, 2020. "Financial development and the shadow economy: A multi-dimensional analysis," Economic Analysis and Policy, Elsevier, vol. 67(C), pages 37-54.
    35. Gazi Salah Uddin & Muhammed Shahbaz & Mohamed Arouri & Frédéric Teulon, 2014. "Financial Development and Poverty Reduction Nexus: A cointegration and causality analysis in Bangladesh," Working Papers 2014-291, Department of Research, Ipag Business School.
    36. Liang, Qi & Teng, Jian-Zhou, 2006. "Financial development and economic growth: Evidence from China," China Economic Review, Elsevier, vol. 17(4), pages 395-411.
    37. Fung, Michael K., 2009. "Financial development and economic growth: Convergence or divergence?," Journal of International Money and Finance, Elsevier, vol. 28(1), pages 56-67, February.
    38. Victor Murinde, 2012. "Financial Development and Economic Growth: Global and African Evidence," Journal of African Economies, Centre for the Study of African Economies, vol. 21(suppl_1), pages -56, January.
    39. Janice Tieguhong Puatwoe & Serge Mandiefe Piabuo, 2017. "Financial sector development and economic growth: evidence from Cameroon," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 3(1), pages 1-18, December.
    40. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    41. Edgar L. Feige, 1979. "How Big Is the Irregular Economy?," Challenge, Taylor & Francis Journals, vol. 22(5), pages 5-13, November.
    42. Hajilee, Massomeh & Stringer, Donna Y. & Metghalchi, Massoud, 2017. "Financial market inclusion, shadow economy and economic growth: New evidence from emerging economies," The Quarterly Review of Economics and Finance, Elsevier, vol. 66(C), pages 149-158.
    43. Zacharias Psaradakis & Martin Sola & Fabio Spagnolo, 2004. "On Markov error-correction models, with an application to stock prices and dividends," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(1), pages 69-88.
    44. Law, Siong Hook & Singh, Nirvikar, 2014. "Does too much finance harm economic growth?," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 36-44.
    45. Niloy Bose & Salvatore Capasso & Martin Andreas Wurm, 2012. "The impact of banking development on the size of shadow economies," Journal of Economic Studies, Emerald Group Publishing, vol. 39(6), pages 620-638, December.
    46. Blackburn, Keith & Bose, Niloy & Capasso, Salvatore, 2012. "Tax evasion, the underground economy and financial development," Journal of Economic Behavior & Organization, Elsevier, vol. 83(2), pages 243-253.
    47. Hsueh, Shun-Jen & Hu, Yu-Hau & Tu, Chien-Heng, 2013. "Economic growth and financial development in Asian countries: A bootstrap panel Granger causality analysis," Economic Modelling, Elsevier, vol. 32(C), pages 294-301.
    48. Asli Demeirgüç-Kunt & Ross Levine (ed.), 0. "Finance and Growth," Books, Edward Elgar Publishing, number 17119.
    49. Hao Chen & Duncan O. Hongo & Max William Ssali & Maurice Simiyu Nyaranga & Consolata Wairimu Nderitu, 2020. "The Asymmetric Influence of Financial Development on Economic Growth in Kenya: Evidence From NARDL," SAGE Open, , vol. 10(1), pages 21582440198, February.
    50. Stephen Cecchetti & Enisse Kharroubi, 2012. "Reassessing the impact of finance on growth," BIS Working Papers 381, Bank for International Settlements.
    51. David J. Pyle, 1989. "The Consequences of Tax Evasion and the Black Economy," Palgrave Macmillan Books, in: Tax Evasion and the Black Economy, chapter 7, pages 130-152, Palgrave Macmillan.
    52. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
    53. David J. Pyle, 1989. "Tax Evasion and the Black Economy," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-08488-3.
    54. Sylviane GUILLAUMONT JEANNENEY & PING HUA & ZHICHENG LIANG, 2006. "Financial Development, Economic Efficiency, And Productivity Growth: Evidence From China," The Developing Economies, Institute of Developing Economies, vol. 44(1), pages 27-52, March.
    55. 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.
    56. repec:bla:econom:v:65:y:1998:i:257:p:107-24 is not listed on IDEAS
    57. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2006. "Testing For Cointegration In Nonlinear Smooth Transition Error Correction Models," Econometric Theory, Cambridge University Press, vol. 22(2), pages 279-303, April.
    58. Shen, Chung-Hua & Lee, Chien-Chiang, 2006. "Same Financial Development Yet Different Economic Growth: Why?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(7), pages 1907-1944, October.
    59. Colin Kirkpatrick, 2000. "Financial Development, Economic Growth, and Poverty Reduction," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 39(4), pages 363-388.
    60. Menyah, Kojo & Nazlioglu, Saban & Wolde-Rufael, Yemane, 2014. "Financial development, trade openness and economic growth in African countries: New insights from a panel causality approach," Economic Modelling, Elsevier, vol. 37(C), pages 386-394.
    61. Demir, Ender & Simonyan, Serdar & García-Gómez, Conrado-Diego & Lau, Chi Keung Marco, 2021. "The asymmetric effect of bitcoin on altcoins: evidence from the nonlinear autoregressive distributed lag (NARDL) model," Finance Research Letters, Elsevier, vol. 40(C).
    62. Mohsin S. Khan & Abdelhak S. Senhadji, 2003. "Financial Development and Economic Growth: A Review and New Evidence," Journal of African Economies, Centre for the Study of African Economies, vol. 12(Supplemen), pages 89-110, September.
    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. Faryal, & Faisal, Faisal & Amin, Muhammad Yusuf & Haq, Zahoor Ul & Rahman, Sami Ur & Ali, Adnan, 2023. "Natural resources revenues, shadow economy and financial institutions depth: The way forward," Resources Policy, Elsevier, vol. 85(PB).
    2. Ichiro Iwasaki & Shigeki Ono, 2024. "Economic development and the finance–growth nexus: a meta-analytic approach," Applied Economics, Taylor & Francis Journals, vol. 56(57), pages 8021-8038, December.

    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. Khalil Mhadhbi & Chokri Terzi & Ali Bouchrika, 2020. "Banking sector development and economic growth in developing countries: a bootstrap panel Granger causality analysis," Empirical Economics, Springer, vol. 58(6), pages 2817-2836, June.
    2. Rudra P. Pradhan & Mak B. Arvin & John H. Hall & Sahar Bahmani, 2014. "Causal nexus between economic growth, banking sector development, stock market development, and other macroeconomic variables: The case of ASEAN countries," Review of Financial Economics, John Wiley & Sons, vol. 23(4), pages 155-173, November.
    3. Pradhan, Rudra P. & Arvin, Mak B. & Bahmani, Sahar & Hall, John H. & Norman, Neville R., 2017. "Finance and growth: Evidence from the ARF countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 66(C), pages 136-148.
    4. Samargandi, Nahla & Fidrmuc, Jan & Ghosh, Sugata, 2015. "Is the Relationship Between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle-Income Countries," World Development, Elsevier, vol. 68(C), pages 66-81.
    5. Vighneswara Swamy & Munusamy Dharani, 2021. "Thresholds in finance–growth nexus: Evidence from G‐7 economies," Australian Economic Papers, Wiley Blackwell, vol. 60(1), pages 1-40, March.
    6. Jagadish Prasad Bist & Nar Bahadur Bista, 2018. "Finance–Growth Nexus in Nepal: An Application of the ARDL Approach in the Presence of Structural Breaks," Vikalpa: The Journal for Decision Makers, , vol. 43(4), pages 236-249, December.
    7. Gnangnon, Sèna Kimm, 2019. "Financial Development and Tax Revenue in Developing Countries: Investigating the International Trade and Economic Growth Channels," EconStor Preprints 206628, ZBW - Leibniz Information Centre for Economics.
    8. Ebru TOPCU Author- Workplace-Name: Nevsehir Haci Bektas Veli University, Department of Economics, Turkey, 2016. "Reexamining Finance-Growth Nexus: A New Literature Survey," EcoForum, "Stefan cel Mare" University of Suceava, Romania, Faculty of Economics and Public Administration - Economy, Business Administration and Tourism Department., vol. 5(Special I), pages 1-7, august.
    9. Pradhan, Rudra P. & Arvin, Mak B. & Norman, Neville R., 2015. "Insurance development and the finance-growth nexus: Evidence from 34 OECD countries," Journal of Multinational Financial Management, Elsevier, vol. 31(C), pages 1-22.
    10. Vighneswara Swamy & Munusamy Dharani, 2020. "Thresholds of financial development in the Euro area," The World Economy, Wiley Blackwell, vol. 43(6), pages 1730-1774, June.
    11. Kais Mtar & Walid Belazreg, 2021. "Causal Nexus Between Innovation, Financial Development, and Economic Growth: the Case of OECD Countries," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 12(1), pages 310-341, March.
    12. Vighneswara Swamy & Dharani M, 2020. "The tipping point of financial development? – evidence from OECD countries," International Economics and Economic Policy, Springer, vol. 17(1), pages 125-165, February.
    13. Kirikkaleli, Dervis & Athari, Seyed Alireza, 2020. "Time-frequency co-movements between bank credit supply and economic growth in an emerging market: Does the bank ownership structure matter?," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    14. Magda Kandil & Muhammad Shahbaz & Mantu Kumar Mahalik & Duc Khuong Nguyen, 2017. "The drivers of economic growth in China and India: globalization or financial development?," International Journal of Development Issues, Emerald Group Publishing Limited, vol. 16(1), pages 54-84, April.
    15. Badeeb, Ramez Abubakr & Lean, Hooi Hooi & Smyth, Russell, 2016. "Oil curse and finance–growth nexus in Malaysia: The role of investment," Energy Economics, Elsevier, vol. 57(C), pages 154-165.
    16. Vassiki Sanogo & Richard K. Moussa, 2017. "Financial Reforms, Financial Development, and Economic Growth in the Ivory Coast," Economies, MDPI, vol. 5(1), pages 1-23, February.
    17. Guangdong Xu & Binwei Gui, 2021. "The non‐linearity between finance and economic growth: a literature review and evidence from China," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 35(1), pages 3-18, May.
    18. Creel, Jérôme & Hubert, Paul & Labondance, Fabien, 2015. "Financial stability and economic performance," Economic Modelling, Elsevier, vol. 48(C), pages 25-40.
    19. PINSHI, Christian P., 2020. "On the causal nature between financial development and economic growth in the Democratic Republic of the Congo: Is it supply leading or demand following?," MPRA Paper 101837, University Library of Munich, Germany, revised 14 Jul 2020.
    20. Christian Pinshi & Anselme M Kabeya, 2020. "Financial development and Economic growth in the Democratic Republic of the Congo : Supply leading or Demand following?," Working Papers hal-02886686, HAL.

    More about this item

    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:wly:jintdv:v:34:y:2022:i:3:p:636-651. 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: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/journal/5102/home .

    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.