The impact of banking development on the size of shadow economies
Abstract
Purpose
The purpose of this paper is to examine the relationship between banking development and the size of shadow economies by employing data on 137 countries over the period from 1995 to 2007. Both cross‐sectional and panel analysis suggest that an improvement in the development of the banking sector is associated with a smaller shadow economy. In addition, the authors find that both the depth and the efficiency of the banking sector matter in reducing the size of shadow economies. These results are robust to a variety of specifications that address multi‐colinearity and endogeneity issues.
Design/methodology/approach
Empirical cross‐section and panel analysis were undertaken.
Findings
The authors find that both the depth and the efficiency of the banking sector matter in reducing the size of shadow economies.
Originality/value
This paper is original. Existing literature has identified a number of factors (e.g. the burden of taxation or regulation, the quality of government, legal enforcement, corruption, etc.) that create such incentives. In this paper the authors highlight another factor – the level of banking development – as a determinant of the shadow economy.
Keywords
Citation
Bose, N., Capasso, S. and Andreas Wurm, M. (2012), "The impact of banking development on the size of shadow economies", Journal of Economic Studies, Vol. 39 No. 6, pp. 620-638. https://doi.org/10.1108/01443581211274584
Publisher
:Emerald Group Publishing Limited
Copyright © 2012, Emerald Group Publishing Limited