SHADOW ECONOMY AND GDP: EMPIRICAL ANALYSIS

Abstract

This paper analyzes relationship between Shadow Economy and GDP (Gross Domestic

Product) in various way. It focuses on the case of several countries such as Mongolia, Russia

and China during the period of 1991-2015 of about 25 years. Our goal was to find a topic

that is not common and complex to do. Of course find a topic that is common is easy to do

and there are enough reference files could be found. Even though Shadow economy is the

topic that is not commonly chosen as a project and its complex for student project we

decided to stay on it and tried to do research on it. Choosing this kind of topic could open

our eyes and help younger students to do research on it. Even it will help us to manage

something like shadow economy and understand this secret society. The Empirical analysis

of the project will define more interesting results. In conclusion, we suppose that Shadow

Economy is part of the human society and it cannot be all eliminated. All countries have

their own dosage of Shadow Economy. But the main thing is that which level is toxic or

nontoxic for economy. Once it cannot be eliminated we believe the right level or small

amount of shadow economy is not affecting bad for the economy in other words any country

can contain Shadow Economy as their part of economy but they should limit it under the

right parameter.

For reaching our goal we took our data from the Global Economy web source. And the data

shows the relationship between Shadow Economy and GDP. If we look closely, the main

data shows the percentage of black market in GDP of the chosen countries. To find the

answer, we put our data on EVIEWS and run tests including Granger Causality, Vector Auto

Regression, and models such as Regression, Correlation and other statistics. Only percentage

of Shadow Economy in GDP will be not enough, so we took 5 variables. In other words,

there are 5 different variables that will help us to identify the problem.

After the tests we found out some interesting results that are proven on the reality. And 3

countries Mongolia, Russia and China are significantly connected to each other. Affecting

from one to another in different ways can tell that.