The econometric analysis of the underground economy in selected Gulf Cooperation Council (GCC) countries: Saudi Arabia, Qatar, The United Arab Emirates, Kuwait and Oman

The growing expansion of the underground economic activities has become a serious concern to many countries as it is viewed as a challenge to the economies in the world. Using the currency demand approach model, this study embarks on analyzing the underground economy particularly in the estimation of its size., and its related issues such as illegal money and tax evasion in selected Gulf Cooperation Council (GCC) countries; United Arab Emirate, Kuwait, Oman, Saudi Arabia and Qatar. The analysis in the study is based on time-series quarterly data over the period of 1991:Q1 to 2010:Q4 for the UAE, Kuwait and Oman; and annual data for Saudi Arabia and Qatar over the period of 1980-2010. The analysis of data begins with stationarity test using the recent techniques that account for structural break in addition to the traditional unit root test. It follows by the Gregory and Hansen cointegration test in the presence of structural break for long-run estimates based on currency demand function. Also, the General to Specific (GETS) technique is employed to estimate the short-run dynamic error correction model. The results of data analysis indicate that the estimated size of the underground economy to Gross Domestic Product (GDP) for Saudi, Qatar, UAE, Kuwait and Oman are 62.80%, 17.03%, 10.34%, 24.95% and 32.35% respectively. While, the estimated average size of the illegal money to the money outside banks for Saudi, Qatar, UAE, Kuwait and Oman are 18.18%, 26.70%, 59.68%, 59.51% and 49.78% respectively. The findings also indicate that the rate of tax evasion to the official GDP is estimated at an average of 5.15%, 2.12%, 0.63%, 2.82% and 2.92% for Saudi, Qatar, UAE, Kuwait and Oman respectively. Given the empirical results obtained from the research, the governments of GCC should formulate rules and regulations; and economics policy that are able to curb the growing size of the underground economic activitie

Estimating the Volume of the Hidden Economy in Yemen, 1995-2009: Evidence from ARDL Approach of Cointegration

Knowing the size of the hidden economic activities is very important for economists as well as policy makers for economic development and planning. The expansion of the activities in hidden economy has become a competing economy with the official activities. This study aims to shed light on the hidden economy’s phenomena in Yemen as a one of the least developing countries. It attempts to measure the size of the hidden economy based on the size of tax evasion by measuring the currency in circulation and the ratio of newly-printed banknotes to the public expenditure. The study uses quarterly data over the period of 1995Q1 to 2009Q4. In this study, the ratio of newly-printed banknotes to the public expenditures which are issued increasingly by monetary authorities over the period are as indicative a wrong monetary policies in Yemen. The study investigates whether there is a long- run relationship in the money demand function which is used as a measurement of the Yemen’s hidden economy. The ARDL bound testing approach for cointegration test is adopted in this study. The empirical results show that there is a unique and stable long-run relationship among currency in circulation and its determinants, which indicates a growing activities of hidden economy in Yemen. It confirmed that the growing of the hidden economy is associated with the weakness in the tax system and corruption in Yemen. The average volume of the hidden economy related to the official GDP has grown steadily from 78.25% in 1995 to 94.1% in 2009. The results also reveal that after incorporating the CUSUM and CUSUMSQ tests, the Yemen’s money demand function is stable between 1995:1 and 2009:4

Non-Linear Effect of Government Debt on Public Expenditure in Nigeria: Insight from Bootstrap ARDL Procedure

This study employs the bootstrap autoregressive distributed lag (ARDL) approach alongside the dynamic ARDL simulations technique to investigate the non-linear effect of public debt on public expenditure in Nigeria during the 1981–2020 period. The result of the bootstrap bounds test illustrates the presence of a long-term relationship between public expenditure and public debt (along with oil rents, output growth and urbanisation). Further, the estimation results indicate that the effect of public debt on public expenditure is non-linear. In particular, public expenditure increases at early stages of rising public debt but declines at latter phases when public debt grows beyond specific threshold. This empirical outcome is further validated by the dynamic ARDL simulations approach which shows a significant decline in predicted public expenditure after short-term expansion due to counterfactual shock in public debt. Thus, policies which diversify public revenue from oil production and a reversal of the rising trend in public debt are recommended to avert the adverse welfare implications of declining public expenditure

Does Financial Inclusion Reduce Poverty in Niger State? Evidence from Logistic Regression Technique

This study employs the logistic regression method to examine the effect of financial inclusion on the level of poverty in Niger State of Nigeria based on cross-sectional data randomly collected from 624 respondents across 224 towns and villages in 12 local government areas (LGAs) of the state. The estimation results illustrate that financial inclusion (proxied by bank account ownership, including access to bank, credit, and mobile phone) is significantly and negatively related to the level of poverty. This empirical outcome is further validated by the results of the Probit regression technique which show a significant negative relationship between financial inclusion and poverty in the state. Based on these empirical findings, the study recommends policies which include broadening bank coverage, softening credit requirements, and enhancement of people’s access to mobile phone and internet services in rural areas of Niger state

Estimating the size of the underground economy in Saudi: Evidence from Gregory-Hansen cointegration based currency demand approach

The objective of this study is to estimate the extent of the underground economy, illegal currency and tax evasion in the Saudi economy over the period of 1980-2010.The study uses the Gregory and Hansen co integration test based on the recent form of the currency demand approach as a proxy to indirectly quantify the underground economy.The study's contribution is in contrast to previous studies that have linked the positive impact of money inflows to the demand for money as a measurement of the underground economy in the recipient economies.This study is the first to includes the variable of money outflows as an important factor that can be an index for the practice of individuals in the activities of the underground economy in the Saudi economy.The outcomes provide that the average size of the underground economy constituted 62.80% of the official GDP over the study period.The size was 64.25% of the official GDP in 1980 and 57.82% of the official GDP in 2010.However,the average size of the illegal money to the money outside banks reached about 18.18%.The rate of tax evasion to the official GDP has been fluctuating over the study period.It was 3.38% of the official GDP in 1980 and 2.53% of the official GDP in 2010. The high rates of tax evasion compared to the official GDP fluctuated from 7.53% in 1982 to 7.91% in 1990.Then, the rates declined, except for the year of 1998, where the rate was 7.21%.From the results, the plot of CUSUM and CUSUMSQ statistic tests for ln(M1) indicating that the model of Saudi money demand is stable over the study period

Estimating the size of the underground economy in the UAE: Evidence from Gregory-Hansen cointegration based currency demand approach

The paper estimates the size of the underground economy and tax evasion in the UAE over the period of 1991:1-2010:4. The study based on currency demand approach model as a proxy to measure the underground economy.The results indicate that the size of the underground economy in the UAE grew significantly on average of 10.34% of the GDP over the study period. The rate of tax evasion on the non-oil tax revenues reached, on average, 10.34% over the study period. Nevertheless, the rate of tax evasion to the GDP remained, on average, at its lowest level at 0.63%