Empirical Economics

, Volume 52, Issue 4, pp 1409–1421 | Cite as

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 


  1. Arrazola M, de Hevia J, Mauleón I, Sánchez R (2011) La economía sumergida en España. In: Dos ensayos de actualidad sobre la economía Española, Fundación de las Cajas de Ahorros (FUNCAS), pp 13–77Google Scholar
  2. Bajada C, Schneider F (2005) The shadow economies of the Asia-Pacific. Pac Econ Rev 10(3):379–401. http://ideas.repec.org/a/bla/pacecr/v10y2005i3p379-401.html
  3. Birinci S (2013) Trade openness, growth, and informality: panel VAR evidence from OECD economies. Econ Bull 33(1):694–705. http://ideas.repec.org/a/ebl/ecbull/eb-13-00032.html
  4. Bovi M (2004) Underground shocks ground zero responses. Public Economics 0408003, EconWPA. http://ideas.repec.org/p/wpa/wuwppe/0408003.html
  5. Bovi M, Dell’Anno R (2010) The changing nature of the OECD shadow economy. J Evolut Econ 20(1):19–48. http://ideas.repec.org/a/spr/joevec/v20y2010i1p19-48.html
  6. Breitung J, Eickmeier S (2006) Dynamic factor models. Allg Stat Arch 90(1):27–42. doi: 10.1007/s10182-006-0219-z. http://dx.doi.org/10.1007/s10182-006-0219-z
  7. Breusch T (2005) Estimating the underground economy using mimic models. Econometrics 0507003, EconWPA. http://ideas.repec.org/p/wpa/wuwpem/0507003.html
  8. De Soto H (1989) The other path. Harper and Row Publishers, New YorkGoogle Scholar
  9. De Soto H (2000) The mystery of capital. Why the capitalism triumphs in the west and fails everywhere else. Transworld Publishers, LondonGoogle Scholar
  10. Eilat Y, Zinnes C (2002) The shadow economy in transition countries: Friend or foe? A policy perspective. World Dev 30(7):1233–1254. doi: 10.1016/S0305-750X(02)00036-0. http://www.sciencedirect.com/science/article/pii/S0305750X02000360
  11. Elgin C, Oztunali O (2012) Shadow economies around the world: model based estimates. Working papers 2012/05, Bogazici University, Department of Economics. http://ideas.repec.org/p/bou/wpaper/2012-05.html
  12. Elgin C, Oztunali O (2013) Institutions, informal economy and economic development. Working papers 2013/03, Bogazici University, Department of Economics. http://ideas.repec.org/p/bou/wpaper/2013-03.html
  13. Elgin C, Schneider F (2013) Shadow economies in OECD countries: DGE vs. MIMIC approaches. Working papers 2013/13, Bogazici University, Department of Economics. http://ideas.repec.org/p/bou/wpaper/2013-13.html
  14. Farrell D (2004) The hidden dangers of the informal economy. McKinsey Q 3:27–37Google Scholar
  15. Feige EL, Urban I (2008) Measuring underground (unobserved, non-observed, unrecorded) economies in transition countries: Can we trust GDP? J Comp Econ 36(2):287–306. doi: 10.1016/j.jce.2008.02.003. http://www.sciencedirect.com/science/article/pii/S0147596708000152
  16. Feld LP, Schneider F (2010) Survey on the shadow economy and undeclared earnings in OECD countries. German Econ Rev 11:109–149. http://ideas.repec.org/a/bla/germec/v11y2010ip109-149.html
  17. Giles DEA (1997) Causality between the measured and underground economies in New Zealand. Appl Econ Lett 4(1):63–67. http://search.ebscohost.com/login.aspx?direct=true&db=eoh&AN=0413894&site=ehost-live
  18. Giles DEA, Tedds LM, Werkneh G (2002) The Canadian underground and measured economies: Granger causality results. Appl Econ 34(18):2347–2352. http://search.ebscohost.com/login.aspx?direct=true&db=eoh&AN=0634756&site=ehost-live
  19. Kaufmann D, Kaliberda A (1996) Integrating the unofficial economy into the dynamics of post socialist economies: a framework of analyses and evidence. In: Kaminski B (ed) Economic transition in Russia and the new states of Eurasia. M.E. Sharpe, London, pp 81–120Google Scholar
  20. La Porta R, Shleifer A (2008) The unofficial economy and economic development. Brook Pap Econ Act 39(2 (Fall)):275–363. http://ideas.repec.org/a/bin/bpeajo/v39y2008i2008-02p275-363.html
  21. Lackó M (2000) Hidden economy—An unknown quantity? Comparative analysis of hidden economies in transition countries, 1989–95. Econ Transit 8(1):117–149. http://ideas.repec.org/a/bla/etrans/v8y2000i1p117-149.html
  22. Loayza NV (1996) The economics of the informal sector: a simple model and some empirical evidence from Latin America. In: Carnegie-Rochester conference series on public policy, vol 45, pp 129–162. doi: 10.1016/S0167-2231(96)00021-8. http://www.sciencedirect.com/science/article/pii/S0167223196000218
  23. Martinez-Lopez D (2013) The underreporting of income by self-employed workers in spain. SERIEs 4(4):353–371. doi: 10.1007/s13209-012-0093-8. http://dx.doi.org/10.1007/s13209-012-0093-8
  24. Perry GE, Maloney WF, Arias OS, Fajnzylber P, Mason AD, Saavedra-Chanduvi J (2007) Informality: exit and exclusion. No. 6730 in World Bank Publications, The World Bank. http://ideas.repec.org/b/wbk/wbpubs/6730.html
  25. Schneider F (2005) Shadow economies around the world: What do we really know? Eur J Polit Econ 21(3):598–642. http://ideas.repec.org/a/eee/poleco/v21y2005i3p598-642.html
  26. Schneider F, Bühn A (2013) Estimating the size of the shadow economy: methods, problems and open questions. CESifo working paper series 4448, CESifo Group Munich. http://ideas.repec.org/p/ces/ceswps/_4448.html
  27. Schneider F, Enste DH (2000) Shadow economies: size, causes, and consequences. J Econ Lit 38(1):77–114. http://www.jstor.org/stable/2565360?origin=JSTOR-pdf
  28. Schneider F, Buehn A, Montenegro C (2010) New estimates for the shadow economies all over the world. Int Econ J 24(4):443–461. http://ideas.repec.org/a/taf/intecj/v24y2010i4p443-461.html
  29. Serrano Sanz JM, Gadea MD (2005) What causes the hidden economy in Spain? Appl Financ Econ Lett 1(3):143–150. http://EconPapers.repec.org/RePEc:taf:apfelt:v:1:y:2005:i:3:p:143-150
  30. Stock J, Watson M (1991) A probability model of the coincident economic indicators. In: Leading economic indicators, new approaches and forecasting records. Cambridge University Press, CambridgeGoogle Scholar
  31. Stock J, Watson M (2010) Dynamic factor models. In: Clements M, Hendry D (eds) Oxford handbook of economic forecasting, chap 2 Oxford University Press, New YorkGoogle Scholar
  32. Tanzi V (1983) The underground economy in the United States: annual estimates, 1930–80. IMF Staff Pap 30(2):283–305. http://ideas.repec.org/a/pal/imfstp/v30y1983i2p283-305.html
  33. Vanberg V (2001) Markets and the law. In: Smelser NJ, Baltes PB (eds) International encyclopedia of the social & behavioral sciences. Pergamon, Oxford, pp 9221–9227. doi: 10.1016/B0-08-043076-7/02897-7. http://www.sciencedirect.com/science/article/pii/B0080430767028977

Copyright information

© Springer-Verlag Berlin Heidelberg 2016

Authors and Affiliations

  1. 1.Institute for Economic PolicyUniversity of LeipzigLeipzigGermany

Personalised recommendations