Analysis of the Factors That Influence the Size Of Underground Economic Activities in Nigeria
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Abstract
This study examined the critical factor that drive people underground. These factors which include poverty, unemployment rate, illiteracy rate, corruption index, real government consumptions, openness of the economy, economic liberalization as well as tax burden. The data for the study were generated from secondary sources and were analysed using multiple regression model. The variables in the model were subjected to unit root, co integration and error correction mechanism. The result showed that out of the eight factors examined only corruption index and economic liberalization were significant at 5% at the short run. The result further revealed that all other factors except tax burden had significant influence on the size of underground economy in the long run at 1%. The study therefore recommended that all hands should be on deck to support the three point agenda corruption, security and economy of the government since the agenda contains issues bordering on curbing corruption, improving public accountability and transparency, diversification of the economy through agriculture which will enhance employment creation and poverty reduction.
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References
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Trends and Challenges to the Process of E.U. Enlargement, Center for Study of Democracy, Sofia.
Buehn, A. & Schneider, F. (2008). MIMIC Models, Cointegration and Error Correction: An Application to the French Economy, IZA Discussion Paper No. 3306: 1 -30
Chiumya, C.C.N. (2007). The Parallel Economy in Malawi: Size, Effect on Tax Revenue and Policy Options. International Graduate School of Social Sciences, Yokohama National University. MPRA.
Cullis, J., Jones, P., & Lewis, A. (2006).Tax Framing, Instrumentality and Individual differences: Are there two different Cultures? Journal of Economic Psychology, 27(2): 304 -320
Dreher, A., Koysogiannis, C. & McCorriston (2005). How do Institutions affect Corruption and the Shadow Economy? University of Konstanz and University of Exeter, Mimeo
Dreher, A & Schneider, F. (2006). Corruption and the Shadow: An Empirical Analysis. Center for Economic Studies and Ifo Institute for Economic Research CESifo Working Paper Series 165
Elijah, O.A. & Uffort, L. (2007). Comparative Analysis of the Relationship between Poverty and Underground Economy in the High Developed Transition and Developing Countries, MPRA, Paper 2054.
Frey, B.S. Weck, H & Pommerehne, W. (1982). Has Shadow Economy Grown in Germany? An Exploratory Study. Review of World Economics, 118,499-524
Friedman, E., Johnson, S., Kaufmann, D., & Soldo-Lobaton, P., (2000), “Dodging the Grabbing Hand: The Determinaficial activity in 69 countries.” Journal l of Public Economics, 76 (4): 459 -494.
Fugazza, M. & Jean-Francois, J. (2004). Labour Market Institutions, Taxation and the Underground Economy. Journal of Public Economics, 88(1): 395 – 418
Goldberg, P.K. & Pavenik, N. (2003). The Response of the Informal Sector to Trade Liberalization Department of Economics Yale University and NBER
Ihendinihu, J.U. & Dudafa, (2008). Impact Assessment of Emerging Tax Issues in Underground Economy in Nigeria. The Nigerian Journal of Financial Research. 6 (1):
Ihendinihu, J.U. & Ochonma, G.C. (2010). Non Tax Factors as Critical Determinants of the Size of Underground Economy in Nigeria: Imperative for Policy Action. Journal of Emerging Trends in Economics and Management Sciences (JETEMS), 1(1): 13 – 22
Johnson, S., Kaufmann, D. & Zoldo-Lobaton, P. (1998b). Corruption, Public Finance and The Unofficial economy in transition, Brookings papers on Economic Activity, Washington D.C.
Katsios, S. (2006). The Shadow Economy and Corruption, In Greece, South –Eastern Europe. Journal of Economics, 1: 61 – 80
Krakowski, M. (2005). Determinants of the Informal Economy: The Importance of Regional Factors. Hamburg Institute of International Economies, 2: 1 – 30
Mauro, P. (1997). The Effect of Corruption on Growth, Investment and Government Expenditure: A Cross Country Analysis. Corruption and the Global Economy, 83 -107
Oduh,M., Eboh, E, Ichoku, H & Ujah, O. (2008). Measurement and Explanation of Informal Sector of the Nigerian Economy. AIAER 1-64
Ogbuabor, J. E. & Malaolu, V.A. (2013) Size and Causes of the Informal Sector of the Nigerian Economy: Evidence from Error Correction MIMIC Model. Journal of Economics and Sustainable Development 4: 1
Oluwatoyin, M.A & Dominic, A. (2013) Trade liberalization and formal-informal sector wage differential in Nigeria. Asian Economic and Financial review. 3 (12). 1651 -1669
Sarte, P. (2000). Informality and Rent Seeking Bureaucracies in model of Long-Run Growth. Journal of monetary Economics, 46(1)
Schneider,F. (2005). Shadow Economies around the world: What do we really know? Forthcoming European Journal of Political Economy. 21(3):594-658
Sookram, S., Schneider, F. & Watson, P.K. (2006). Characteristics of the Household Sector of the Hidden Economy in an Emerging Economy, Working Paper No.0605. University of West Indies.
Schneider, F. (2007), “Reducing the Shadow Economy in Germany: A Blessing or a Curse? Discussion Paper, Department of Economics. University of Linz, Linz
Schneider, F. & Buehn, A (2011) Corruption and the Shadow Economy: What do we really know? Paper prepared for the 67th Annual Congress of the International Institute of Public Finance, Ann Arbor, Michigan, United States, August, 7- 11
Stallings, B. & Wilson, P.(2000).Growth, Employment and equity. The Impact of the Economic Reforms in Latin American and Caribbean. Economic Commission for Latin American and Caribean. Washington D.C.: Brookings Institution Press.
Tanzi,V. & Davoodi, H (1997). Corruption. Public Investment and Growth. International Monetary Fund Working Paper,97/139
Turkey, B.A. (2005). The Impacts of the Informal Sector on the Effective Enforcement of
Competition Law and Policy: Informal Sector. Retrieved from http://pioneer.netserv.chula. ac.th/ackieatvi/