IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_5727.html
   My bibliography  Save this paper

Modelling the Egyptian Shadow Economy: A Currency Demand and A MIMIC Model Approach

Author

Listed:
  • Mai Hassan
  • Friedrich Schneider

Abstract

We estimate the size and trend of the Egyptian shadow economy using two of the most common methods: the currency demand approach and the structural equation MIMIC model. To the best of our knowledge, this is the first comprehensive study to estimate the size of the shadow economy in Egypt during the last four decades (1976 to 2013). In addition to the standard explanatory variables used in the currency demand approach and MIMIC model, we consider variables that are specifically related to the Egyptian economy such as self-employment, agricultural importance and a proxy for institutional quality of democratic institutions. Our results indicate a decreasing trend of the size of the shadow economy from more than 50% in 1976 to 32% in 2013, yet it still comprises a large portion of the official GDP.

Suggested Citation

  • Mai Hassan & Friedrich Schneider, 2016. "Modelling the Egyptian Shadow Economy: A Currency Demand and A MIMIC Model Approach," CESifo Working Paper Series 5727, CESifo.
    • Handle: RePEc:ces:ceswps:_5727
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp5727.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2002. "The Regulation of Entry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 1-37.
    3. Roberto Dell’Anno & Miguel Gómez-Antonio & Angel Alañon-Pardo, 2007. "The shadow economy in three Mediterranean countries: France, Spain and Greece. A MIMIC approach," Empirical Economics, Springer, vol. 33(1), pages 197-197, July.
    4. Zellner, Arnold, 1970. "Estimation of Regression Relationships Containing Unobservable Independent Variables," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 11(3), pages 441-454, October.
    5. Angel Alanon & M. Gomez-Antonio, 2005. "Estimating the size of the shadow economy in Spain: a structural model with latent variables," Applied Economics, Taylor & Francis Journals, vol. 37(9), pages 1011-1025.
    6. Andreas Buehn & Mohammad Reza Farzanegan, 2013. "Impact of education on the shadow economy: Institutions matter," Economics Bulletin, AccessEcon, vol. 33(3), pages 2052-2063.
    7. 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.
    8. Michael Pickhardt & Jordi Sarda, 2011. "The size of the underground economy in Germany: a correction of the record and new evidence from the modified-cash-deposit-ratio approach," European Journal of Law and Economics, Springer, vol. 32(1), pages 143-163, August.
    9. Torgler, Benno & Schneider, Friedrich, 2009. "The impact of tax morale and institutional quality on the shadow economy," Journal of Economic Psychology, Elsevier, vol. 30(2), pages 228-245, April.
    10. Macias, Jose Brambila & Cazzavillan, Guido, 2009. "The dynamics of parallel economies. Measuring the informal sector in Mexico," Research in Economics, Elsevier, vol. 63(3), pages 189-199, September.
    11. repec:bla:revinw:v:47:y:2001:i:2:p:239-50 is not listed on IDEAS
    12. Guillermo Vuletin, 2008. "What is the Size of the Pie? Measuring the Informal Economy in Latin America and the Caribbean," Money Affairs, CEMLA, vol. 0(2), pages 161-191, July-Dece.
    13. 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.
    14. Michael Pickhardt & Jordi Sardà, 2015. "Size and causes of the underground economy in Spain: a correction of the record and new evidence from the MCDR approach," European Journal of Law and Economics, Springer, vol. 39(2), pages 403-429, April.
    15. Paolo Caridi & Paolo Passerini, 2001. "The Underground Economy, the Demand for Currency Approach and the Analysis of Discrepancies: Some Recent European Experience," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 47(2), pages 239-250, June.
    16. Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo.
    17. Schneider,Friedrich & Enste,Dominik H., 2016. "The Shadow Economy," Cambridge Books, Cambridge University Press, number 9781316600894, January.
    18. José Brambila Macias & Guido Cazzavillan, 2010. "Modeling the informal economy in Mexico:a structural equation approach," Journal of Developing Areas, Tennessee State University, College of Business, vol. 44(1), pages 345-365, September.
    19. Hildegart Ahumada & Facundo Alvaredo & Alfredo Canavese, 2007. "The Monetary Method And The Size Of The Shadow Economy: A Critical Assessment," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 53(2), pages 363-371, June.
    20. Arne Jon Isachsen & Steiner Strøm, 1985. "The Size And Growth Of The Hidden Economy In Norway," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 31(1), pages 21-38, March.
    21. 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.
    22. Andreas Buehn, 2012. "The Shadow Economy in G erman Regions: An Empirical Assessment," German Economic Review, Verein für Socialpolitik, vol. 13(3), pages 275-290, August.
    23. Andreas Bühn & Friedrich Schneider, 2008. "MIMIC Models, Cointegration and Error Correction: An Application to the French Shadow Economy," CESifo Working Paper Series 2200, CESifo.
    24. Chaudhuri, Kausik & Schneider, Friedrich & Chattopadhyay, Sumana, 2006. "The size and development of the shadow economy: An empirical investigation from states of India," Journal of Development Economics, Elsevier, vol. 80(2), pages 428-443, August.
    25. Martha Alter Chen, 2007. "Rethinking the Informal Economy: Linkages with the Formal Economy and the Formal Regulatory Environment," Working Papers 46, United Nations, Department of Economics and Social Affairs.
    26. 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.
    27. 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.
    28. Angel-Urdinola, Diego F. & Tanabe, Kimie, 2012. "Micro-determinants of informal employment in the Middle East and North Africa region," Social Protection Discussion Papers and Notes 66594, The World Bank.
    29. Torgler, Benno & Schneider, Friedrich, 2007. "Shadow Economy, Tax Morale, Governance and Institutional Quality: A Panel Analysis," Berkeley Olin Program in Law & Economics, Working Paper Series qt26s710z8, Berkeley Olin Program in Law & Economics.
    30. Tanzi, Vito, 1999. "Uses and Abuses of Estimates of the Underground Economy," Economic Journal, Royal Economic Society, vol. 109(456), pages 338-347, June.
    31. Désirée Teobaldelli & Friedrich Schneider, 2013. "The influence of direct democracy on the shadow economy," Public Choice, Springer, vol. 157(3), pages 543-567, December.
    32. Friedrich Schneider & Kausik Chaudhuri & Sumana Chatterjee, 2003. "The Size and Development of the Indian Shadow Economy and a Comparison with other 18 Asian Countries: An Empirical Investigation," Economics working papers 2003-02, Department of Economics, Johannes Kepler University Linz, Austria.
    33. Christopher Bajada & Friedrich Schneider, 2005. "The Shadow Economies Of The Asia‐Pacific," Pacific Economic Review, Wiley Blackwell, vol. 10(3), pages 379-401, October.
    34. Guillermo Javier Vuletin, 2008. "Measuring the Informal Economy in Latin America and the Caribbean," IMF Working Papers 2008/102, International Monetary Fund.
    35. 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.
    36. Hans-Georg Petersen & Ulrich Thiessen & Pierre Wohlleben, 2010. "Shadow Economy, Tax Evasion, and Transfer Fraud - Definition, Measurement, and Data Problems," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 421-441.
    37. Edgar L. Feige, 1979. "How Big Is the Irregular Economy?," Challenge, Taylor & Francis Journals, vol. 22(5), pages 5-13, November.
    38. 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.
    39. Egle Tafenau & Helmut Herwartz & Friedrich Schneider, 2010. "Regional Estimates of the Shadow Economy in Europe," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 629-636.
    40. Colin C. Williams, 2006. "Evaluating the magnitude of the shadow economy: a direct survey approach," Journal of Economic Studies, Emerald Group Publishing, vol. 33(5), pages 369-385, November.
    41. Offiong Helen Solomon & Sibhaa Shrestha, 2014. "Does the informal sector thrive under democracy or autocracy? the case of Nepal," Journal of Developing Areas, Tennessee State University, College of Business, vol. 48(3), pages 245-267, July-Sept.
    42. Tedds, Lindsay, 2005. "The Underground Economy in Canada," MPRA Paper 4229, University Library of Munich, Germany.
    43. Guerino Ardizzi & Carmelo Petraglia & Massimiliano Piacenza & Gilberto Turati, 2014. "Measuring the Underground Economy with the Currency Demand Approach: A Reinterpretation of the Methodology, With an Application to Italy," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(4), pages 747-772, December.
    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. Glenn Abela & Tiziana Gauci & Noel Rapa, 2022. "An Analysis of The Shadow Economy in Malta: A Currency Demand and MIMIC Model Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 12(1), pages 41-50.
    2. Paraskevi Koufopoulou & Colin C. Williams & Athanassios Vozikis & Kyriakos Souliotis & Antonios Samprakos, 2021. "Estimating Shadow Economy Size in Greece 2000 - 2018: A Flexible MIMIC Approach," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 71(3-4), pages 23-47, July-Dece.
    3. James Murunga & Nelson W. Wawire & Moses K. Muriithi, 2021. "Tax Revenue Productivity of Tax Reforms in Kenya," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 13(12), pages 1-42, December.
    4. 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.
    5. Stefan Petranov & Dimitar Zlatinov & Ilia Atanasov, 2022. "The Shadow Economy in Bulgaria During the Period 2006-2019," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 5, pages 3-18.
    6. Sahnoun, Marwa & Abdennadher, Chokri, 2019. "The nexus between unemployment rate and shadow economy: A comparative analysis of developed and developing countries using a simultaneous-equation model," Economics Discussion Papers 2019-30, Kiel Institute for the World Economy (IfW Kiel).
    7. Lahlou, Kamal & Doghmi, Hicham & Schneider, Friedrich, 2020. "The Size and Development of the Shadow Economy in Morocco," Document de travail 2020-3, Bank Al-Maghrib, Département de la Recherche.
    8. Mohammed Nayel Abu Alfoul & Ibrahim Naser Khatatbeh & Fouad Jamaani, 2022. "What Determines the Shadow Economy? An Extreme Bounds Analysis," Sustainability, MDPI, vol. 14(10), pages 1-22, May.
    9. Rajeev K. Goel & James W. Saunoris & Friedrich Schneider, 2019. "Growth In The Shadows: Effect Of The Shadow Economy On U.S. Economic Growth Over More Than A Century," Contemporary Economic Policy, Western Economic Association International, vol. 37(1), pages 50-67, January.
    10. Vicente Ríos & Antonio Gómez & Pedro Pascual, 2021. "Raising the Accuracy of Shadow Economy Measurements," Hacienda Pública Española / Review of Public Economics, IEF, vol. 239(4), pages 71-125, November.
    11. Evgeniya Baturina & Alexander Litvinenko, 2018. "Monitoring of Shadow Cash Flows Using Computer Modelling," Economy of region, Centre for Economic Security, Institute of Economics of Ural Branch of Russian Academy of Sciences, vol. 1(1), pages 326-338.
    12. Elham Taheri & Salih KatircioÄŸlu & Ayhan Tecel, 2024. "Gender Differences in the Impact of the Informal Economy on the Labor Market: Evidence From Middle Eastern Countries," Evaluation Review, , vol. 48(5), pages 865-892, October.
    13. Pasovic Edin & Efendic Adnan S., 2018. "Informal Economy in Bosnia and Herzegovina – An Empirical Investigation," South East European Journal of Economics and Business, Sciendo, vol. 13(2), pages 112-125, December.
    14. Hassan, Mai & Schneider, Friedrich, 2016. "Size and Development of the Shadow Economies of 157 Countries Worldwide: Updated and New Measures from 1999 to 2013," IZA Discussion Papers 10281, Institute of Labor Economics (IZA).
    15. Hailin Chen & Friedrich Schneider & Qunli Sun, 2020. "Measuring the size of the shadow economy in 30 provinces of China over 1995–2016: The MIMIC approach," Pacific Economic Review, Wiley Blackwell, vol. 25(3), pages 427-453, August.
    16. Dasgupta, Manjira, 2017. "Moving towards "Cashlessness" in an emerging economy: A case study of latest policy steps in India," International Cash Conference 2017 – War on Cash: Is there a Future for Cash? 162907, Deutsche Bundesbank.
    17. Samaranayake, D.I.J. & Dayaratna-Banda, O.G., 2019. "Underemployment and Shadow Economy; Is There a Structural Relationship? A Lab-Experimental Test," MPRA Paper 121429, University Library of Munich, Germany, revised 21 Aug 2019.
    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. Schneider Friedrich & Buehn Andreas, 2017. "Shadow Economy: Estimation Methods, Problems, Results and Open questions," Open Economics, De Gruyter, vol. 1(1), pages 1-29, March.

    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. 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.
    2. 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.
    3. Hassan, Mai & Schneider, Friedrich, 2016. "Size and Development of the Shadow Economies of 157 Countries Worldwide: Updated and New Measures from 1999 to 2013," IZA Discussion Papers 10281, Institute of Labor Economics (IZA).
    4. Donal Mac Géidigh & Friedrich Schneider & Matthias Blum, 2016. "Grey Matters: Charting the Development of the Shadow Economy," CESifo Working Paper Series 6234, CESifo.
    5. Luisanna Onnis & Patrizio Tirelli, 2011. "Institutions, policies and economic development. What are the causes of the shadow economy?," Working Papers 206, University of Milano-Bicocca, Department of Economics, revised Mar 2011.
    6. Leandro Medina & Friedrich Schneider, 2019. "Shedding Light on the Shadow Economy: A Global Database and the Interaction with the Official One," CESifo Working Paper Series 7981, CESifo.
    7. Dell’Anno, Roberto & Davidescu, Adriana AnaMaria, 2019. "Estimating shadow economy and tax evasion in Romania. A comparison by different estimation approaches," Economic Analysis and Policy, Elsevier, vol. 63(C), pages 130-149.
    8. Goel, Rajeev K. & Saunoris, James W. & Schneider, Friedrich, 2019. "Drivers of the underground economy for over a century: A long term look for the United States," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 95-106.
    9. 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.
    10. Luisanna Onnis & Patrizio Tirelli, 2010. "Challenging the popular wisdom. New estimates of the unobserved economy," Working Papers 184, University of Milano-Bicocca, Department of Economics, revised Apr 2010.
    11. Nora Angour & Mohammed Nmili, 2019. "Estimating Shadow Economy and Tax Evasion: Evidence from Morocco," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(5), pages 1-7, May.
    12. 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.
    13. Cong Minh Huynh & Tan Loi Nguyen, 2020. "Fiscal policy and shadow economy in Asian developing countries: does corruption matter?," Empirical Economics, Springer, vol. 59(4), pages 1745-1761, October.
    14. Paraskevi Koufopoulou & Colin C. Williams & Athanassios Vozikis & Kyriakos Souliotis & Antonios Samprakos, 2021. "Estimating Shadow Economy Size in Greece 2000 - 2018: A Flexible MIMIC Approach," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 71(3-4), pages 23-47, July-Dece.
    15. Colin C. Williams, 2023. "A Modern Guide to the Informal Economy," Books, Edward Elgar Publishing, number 18668.
    16. Sahnoun, Marwa & Abdennadher, Chokri, 2019. "The nexus between unemployment rate and shadow economy: A comparative analysis of developed and developing countries using a simultaneous-equation model," Economics Discussion Papers 2019-30, Kiel Institute for the World Economy (IfW Kiel).
    17. Friedrich Schneider, 2014. "In the Shadow of the State – The Informal Economy and Informal Economy Labor Force," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 4, pages 227-248, December.
    18. Vicente Ríos & Antonio Gómez & Pedro Pascual, 2021. "Raising the Accuracy of Shadow Economy Measurements," Hacienda Pública Española / Review of Public Economics, IEF, vol. 239(4), pages 71-125, November.
    19. Friedrich SCHNEIDER, 2016. "Estimating the Size of the Shadow Economy: Methods, Problems and Open Questions," Turkish Economic Review, KSP Journals, vol. 3(2), pages 256-280, June.
    20. Emmanuel Umoru Haruna & Usman Alhassan, 2022. "Does digitalization limit the proliferation of the shadow economy in African countries? An in‐depth panel analysis," African Development Review, African Development Bank, vol. 34(S1), pages 34-62, July.

    More about this item

    Keywords

    shadow economy of Egypt; currency demand approach (CDA); MIMIC estimation;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • I20 - Health, Education, and Welfare - - Education - - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

    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:ces:ceswps:_5727. 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: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.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.