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2017 | OriginalPaper | Chapter

11. What Are the Main Determinants of the Romanian Shadow Economy? An Empirical Analysis Based on Structural Equation Models

Author : Adriana Anamaria Davidescu, PhD

Published in: Development, Growth and Finance of Organizations from an Eastern European Context

Publisher: Springer International Publishing

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Abstract

This paper aims to estimate the size of the Romanian shadow economy (SE) by applying a structural equation approach using quarterly data for the period 2000–2013. In order to do that, the shadow economy is modelled like a latent variable using a special case of the structural equation models – the MIMIC model. The empirical results pointed out the best model as a MIMIC 4-1-2 model with four causal variables (unemployment rate, self-employment, government employment and 12-month real interest rate) and two indicators (index of real GDP and currency ratio M1/M2).

The shadow economy measured as percentage of official GDP records the value of 40.27% in the first quarter of 2000 and follows a descendent trend reaching the value of 27% in the third quarter of 2008. The size of the shadow economy begins to slowly increase, reaching the value of 32.8% of official GDP in the third quarter of 2010. For the last years, the size of the unreported economy oscillates around the value of 28–29% of official GDP.

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This test is performed by PRELIS 2.53. It is computer software that accompanies LISREL 8.53 and performs normality diagnostics. It provides measures of univariate and multivariate skewness and kurtosis.

Government employment in labour force is called bureaucracy index.

$ Index\ realGDP=\raisebox{1ex}{$ RealGD{P}_t$}\!\left/ \!\raisebox{-1ex}{$ RealGD{P}_{2005 Q3}$}\right. $.

The size of shadow economy in 2004/2005 according to Schneider and Enste (1998, 2000); Schneider (2002, 2004, 2005, 2006, 2007, 2008) was 35.4% using currency demand approach and DYMIMIC model and 36.2% according to Schneider et al. (2010) using MIMIC models. The average is 35.8% at the level of 2005.

As the variables are all differenced to the same degree, to calculate the levels of the latent variable multiplying the structural coefficients for raw (unfiltered) data, it is equivalent to compute the changes in the index by multiplying coefficients for the differenced causes and then to integrate them.

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^***Quarterly National Accounts database, Eurostat

^***Quarterly Government Finance Statistics database, Eurostat

^***Quarterly Interest Rates database, Eurostat

^***Quarterly Monetary and Financial Statistics database, Eurostat

^***Tempo database, National Institute of Statistics, www.insse.ro

^***Monthly Bulletins of National Bank of Romania, 2000–2010, www.bnr.ro

^***EViews 7.0 software

^***Lisrel 9.1 software

Title: What Are the Main Determinants of the Romanian Shadow Economy? An Empirical Analysis Based on Structural Equation Models
Author: Adriana Anamaria Davidescu, PhD
Publisher: Springer International Publishing
Book: Development, Growth and Finance of Organizations from an Eastern European Context
Print ISBN: 978-3-319-54453-3

Electronic ISBN: 978-3-319-54454-0

Copyright Year: 2017
DOI: https://doi.org/10.1007/978-3-319-54454-0_11