Empirical Economics

, Volume 52, Issue 4, pp 1409–1421

The relationship between GDP and the size of the informal economy: empirical evidence for Spain



The empirical evidence on the linkage of the informal economy and GDP is ambiguous. It depends on the method used to estimate the size of the informal economy, since each method includes some specific approach noise. I propose a common factor of four different informality measurement methods as a way of reducing the noise. Using Spain as an example I find that neither GDP Granger-causes informality nor informality Granger-causes GDP. If at all, GDP and informality only weakly respond to shocks of the other variable. The formal and informal economies in Spain seem to be rather independent arenas for economic exchange.


Informal economy Dynamic factor model Granger causality 


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© Springer-Verlag Berlin Heidelberg 2016

Authors and Affiliations

  1. 1.Institute for Economic PolicyUniversity of LeipzigLeipzigGermany

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