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SHADOW ECONOMY AND FOREIGN DIRECT INVESTMENTS: AN EMPIRICAL ANALYSIS FOR THE CASE OF ROMANIA
Abstract
Shadow economy (SE) represents a controversial phenomenon, present more or less in all economies, whose empirical estimates should be regarded with due reserve.
The main goal of this paper is to analyze the nature of the relationship between Romanian shadow economy, expressed as % of the official GDP and the foreign direct investments (FDI) using two causality analysis methods, namely the Granger causality analysis method and the Toda-Yamamoto procedure, based on quarterly data, over the period 2000-2010. The paper will also try to particularize the implications of this relationship on the sustainable development of the Romanian economy.
For that purpose we will use the shadow economy series estimated in a previous article using one of the monetary approaches, the currency demand approach, based on econometrical methodology of error correction models and co-integration. The quantitative demarche of shadow economy estimation is detailed in Alexandru (Davidescu) and Dobre (2013).
The empirical results highlight a unidirectional short-run causality that runs only from foreign direct investments to the shadow economy. The impulse responses function indicates a short-run negative relationship between FDI and SE.
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References
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