Current Issue

Seoul Journal of Economics - Vol. 37 , No. 1

[ Article ]
Seoul Journal of Economics - Vol. 35, No. 4, pp. 359-402
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 30 Nov 2022
Received 08 Jun 2022 Revised 12 Oct 2022 Accepted 14 Oct 2022
DOI: https://doi.org/10.22904/sje.2022.35.4.002

Shadow Economy, Transaction Sector, and Economic Convergence: Evidence from a Global Panel of Countries
Ivan D. Trofimov ; Ahmed Sharaan
Ivan D. Trofimov, Corresponding Author, KYS Business School Ayer Keroh Country Resort, Melaka, Malaysia (ivan.trofimov1@gmail.com)
Ahmed Sharaan, Aveiro University, Portugal (ahmed.sharaan@ua.pt)

JEL Classification: O17; O47


Abstract

This study examines GDP per capita convergence by adjusting the official data by the size of the shadow economy and the transaction sector. The findings demonstrate the reduction of income per capita absolute distance from the relevant benchmarks and smaller income per capita dispersion in a global panel and sub-groups. The intra-distributional mobility of economies and the gamma convergence were absent. The stochastic convergence was observed in all specifications, both vis-à-vis the world average or the high-income economies. With regard to club convergence, the stability of the relative transition paths and the club composition were indicated (hence, little convergence across the clubs and more substantial convergence within the clubs).


Keywords: Shadow economy, transaction activities, convergence

Acknowledgments

The authors would like to thank the anonymous reviewers for their comments and suggestions.


References
1. Abramovitz, M. “Catching Up, Forging Ahead, and Falling Behind.” Journal of Economic History 46(No. 2 1986): 385-406.
2. Andres, J., Domenech, R., Molinas, C. “Macroeconomic Performance and Convergence in OECD Countries.” European Economic Review 40(No.9 1996): 1683-1704.
3. Apergis, N., Christou, C., and Payne, J. “Political and Institutional Factors in the Convergence of International Equity Markets: Evidence from the Club Convergence and Clustering Procedure.” Atlantic Economic Journal 39(No. 1 2011): 7-18.
4. Ayala, A., Cunado, J., and Gil-Aldana, L. “Real Convergence: Empirical Evidence for Latin America.” Applied Economics 22(No.22 2013): 3220-3229.
5. Barrio, C., Flores, E., and Martinez, A. “Club Convergence in Innovation Activity across European Regions.” Papers in Regional Science 98(No. 4 2019): 1545-1565.
6. Barro, R. “Economic Growth in a Cross-section of Countries.” Quarterly Journal of Economics 106(No. 2 1991): 407-443.
7. Barro, R., and Sala-i-Martin, X.. “Convergence.” Journal of Political Economy 100(No. 2 1992): 223-251.
8. Ben-David, D. “Equalizing Exchange: Trade Liberalization and Income Convergence.” Quarterly Journal of Economics 108(No. 3 1993): 653-679.
9. Bernard, A, and Durlauf, S. “Convergence in International Output.” Journal of Applied Econometrics 10(No.2 1995): 97-108.
10. Blanco, F., Delgado, F., and Presno, M. “Fiscal Decentralizaton Policies in the EU: A Comparative Analysis through a Club Convergence.” Journal of Comparative Policy Analysis: Research and Practice 22(No. 3 2020): 1-25.
11. Boyle, G., and McCarthy, T. “A Simple Measure of β-Convergence.” Oxford Bulletin of Economics and Statistics 59(No. 2 1997): 257-264.
12. Boyle, G., and McCarthy, T. “Simple Measures of Convergence in Per Capita GDP: A Note on Some Further International Evidence.” Applied Economics Letters 6(No. 6 1999): 343-347.
13. Caselli, F., and Coleman, W. “The US Structural Transformation and Regional Convergence: A Reinterpretation.” Journal of Political Economy 109(No. 3 2001): 584-616.
14. Cellini, R., and Scorcu, A. “Segmented Stochastic Convergence across the G-7 Countries.” Empirical Economics 25(No.3 2000): 463-474.
15. Cette, G., Fernald, J., and Mojon, B. The Pre-Great Recession Slowdown in Productivity. Federal Reserve Bank of San Francisco Working Paper No. 2016-08, 2016.
16. Clark, P. “An Extension of the Coefficient of Divergence for the Use with Multiple Characters.” Copeia 2(No.2 1952): 61-64.
17. Coase, R. “The Problem of Social Cost.” Journal of Law and Economics 3(1960): 1-44.
18. Collier, P., and Gunning, J. “Why Has Africa Grown Slowly?” Journal of Economic Perspectives 13(No. 3 1999): 3-22.
19. Cunado, J, and Garcia, F. “Real Convergence in Africa in the Second-half of the 20th Century.” Journal of Economics and Business 58 (No. 2 2006): 153-167.
20. De Siano, R., and D’Uva, M\. “Club Convergence in European Regions.” Applied Economics Letters 13(No. 9 2006): 569-574.
21. Dollery, B., and Leong, W. H. “Measuring the Transaction Sector in the Australia Economy, 1911-1991.” Australian Economic History Review 38(No. 3 1998): 207-231.
22. Evans, P., and Karras, G. “Convergence Revisited.” Journal of Monetary Economics 37(No. 2 1996): 249-265.
23. Friedman, M. “Do Old Fallacies Ever Die?” Journal of Economic Literature 30(No. 4 1992): 2129-2132.
24. Fuess, S. M., and Van Den Berg, H. Does GNP Growth Overestimate Growth in ‘Actual’ Output?, Working Paper, University of Nebraska, Lincoln, 1991.
25. Fuess, S., and Van Den Berg, H. “The Impact of Transaction Activities on US Productivity Growth.” Economics Letters 38(No. 2 1992): 243-247.
26. Fuess, S., and Van Den Berg, H. “Does GDP Distort Mexico’s Economic Performance?” Southern Economic Journal 64(No. 4 1998): 973-986.
27. Glodowska, A., and Pera, B.. “On the Relationship between Economic Integration, Business Environment and Real Convergence: The Experience of the CEE Countries.” Economies 7 (No. 2 2019): 1-19.
28. Hamit-Haggar, M. “A Note on Convergence across Canadian Provinces: New Insights from the Club Clustering Algorithm.” Annals of Regional Science 50(No. 2 2013): 591-601.
29. Hay, C. “Common Trajectories, Variable Paces, Divergent Outcomes? Models of European Capitalism under Conditions of Complex Economic Interdependence.” Review of International Political Economy 11(No. 2 2004): 231-262.
30. Islam, N. “Growth Empirics: A Panel Data Approach.” The Quarterly Journal of Economics 110(No. 4 1995): 1127-1170.
31. Ito, T. “Growth Convergence and the Middle-Income Trap.” Asian Development Review 34 (No. 1 2017): 1-27.
32. Johnson, P., and Papageorgiou, C. “What Remains of Cross-Country Convergence?” Journal of Economic Literature 58(No. 1 2020): 129-175.
33. Konya, L. “New Panel Data Evidence of Human Development Convergence from 1975-2005.” Global Business and Economics Review 13(No. 1 2011): 57-69.
34. Koo, J., and Lee, S. “Regional Income Convergence: Evidence from Panel Unit Root Tests.” Seoul Journal of Economics 13(No. 4 2000): 459-469.
35. Kravis, I., Heston, A., and Summers, R. International Comparisons of Real P roduct and P urchasing P ower. Baltimore: The Johns Hopkins University Press, 1978.
36. Krause, M. “The Millennium Peak in Club Convergence: A New Look at Distributional Changes in the Wealth of Nations.” Journal of Applied Econometrics 32 (No. 3 2016): 621-642.
37. Kuznets, S. Economic Growth and Structure. New York: W. W. Norton, 1965.
38. McCoskey, S. “Convergence in Sub-Saharan Africa: A Nonstationary Panel Data Approach.” Applied Econometrics 34 (No. 7 2002): 819-829.
39. Medina, L., and Schneider, F. Shadow Economies around the World: What Did We Learn Over the Last 20 Years?, IMF Working Paper No. WP/18/17, 2018.
40. Mello, M., and Perrelli, R. “Growth Equations: A Quantile Regression Exploration.” The Quarterly Review of Economics and Finance 43(No. 4 2003): 643-667.
41. Mendez, C. “Lack of Global Convergence and the Formation of Multiple Welfare Clubs across Countries: An Unsupervised Machine Learning Approach.” Economies 7(No. 74 2019): 1-17.
42. Murthy, V., and Chien, I. “The Empirics of Economic Growth for OECD Countries: Some New Findings.” Economics Letters 55(1997): 425-429.
43. Murthy, V., and Upkolo, V. “A Test of the Conditional Convergence Hypothesis: Econometric Evidence from African Countries.” Economics Letters 65(1999): 249-253.
44. Nonneman, W., and Vanhoudt, P. “A Further Augmentation of the Solow Model and the Empirics of Economic Growth for OECD Countries.” The Quarterly Journal of Economics 111(No. 3 1996): 943-953.
45. North, D. “Government and the Cost of Exchange in History.” Journal of Economic History 44(No. 2 1984): 255-264.
46. North, D. “Institutions, Transaction Costs and Economic Growth.” Economic Inquiry 25(No. 3 1987): 419-428.
47. Paitaridis, D., and Tsoulfidis, L. “The Growth of Unproductive Activities, the Rate of Profit, and the Phase-Change of the US Economy.” Review of Radical Political Economics 44(No. 2 2012): 213-233.
48. Paschaloudis, D., and Alexiadis, S. “Galton’s Fallacy and Economic Convergence: An Alternative Approach to Regional Convergence in Greece.” Seoul Journal of Economics 10 (No. 2 2006): 233-250.
49. Phillips, P., and Sul, D. “Transition Modeling and Econometric Convergence Tests.” Econometrica 75(No. 6 2007): 1771-1855.
50. Pritchett, L. “Divergence, Big Time.” Journal of Economic Literature 11 (No. 3 1997): 3-17.
51. Quah, D. “Galton’s Fallacy and Tests of the Convergence Hypothesis.” Scandinavian Journal of Economics 95(No. 4 1993): 427-443.
52. Quah, D. “Empirics for Economic Growth and Convergence.” European Economic Review 40(No. 6 1996): 1353-1375.
53. Ram, R. “Comparison of Cross-country Measures of Sigma Convergence in Per-capita Income, 1960-2010.” Applied Economics Letters 25(No. 14 2017): 1010-1014.
54. Rapacki, R., and Prochniak, M. “Real Beta and Sigma Convergence in 27 Transition Countries, 1990-2005.” Post-Communist Economies 21(No. 3 2009): 307-326.
55. Strazicich, M., Lee, J, and Day, E. “Are Incomes Converging among OECD Countries? Time Series Evidence with Two Structural Breaks.” Journal of Macroeconomics 26(2004): 131-145.
56. Tan, Y., Habibullah, M., Kaliappan, S., and Radam, A. “Some New Estimates of Shadow Economy for 80 Countries Using Pooled Mean Group Estimator.” International Journal of Business and Society 18(No. 1 2017): 133-156.
57. Tunali, C., and Yilanci, V. “Are Per Capita Incomes of MENA Countries Converging or Diverging?” Physica A: Statistical Mechanics and its Applications 389(No. 21): 4855-4862.
58. United Nations Economic Commission for Europe / UNECE. Non-observed Economy in National Accounts: Survey of Country Practices. New York and Geneva: United Nations, 2008.
59. Wallis, Joe, and North, Douglass. “Measuring the Transaction Sector in the American Economy, 1870-1970.” In Engerman, S. L., Gallman, R. E. (Eds.). Long-term Factors in American Economic Growth. Chicago: The University of Chicago Pres, 1986.
60. Wolff, Edward. Growth, Accumulation, and Unproductive Activity: An Analysis of the Postwar US Economy. New York: Cambridge University Press, 1987.