INTERDEPENDENCE BETWEEN HUMAN CAPITAL AND THE POWER OF A SHADOW ECONOMY: LITHUANIAN CASE STUDY

Rūta Čiutienė,Sigitas Vaitkevičius,Asta Savanevičienė,Evelina Meilienė

doi:10.3846/20294913.2015.1017864

Rūta Čiutienė, Sigitas Vaitkevičius + Show 2 more

Open Access

https://doi.org/10.3846/20294913.2015.1017864

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Abstract

According to economic theory, economic growth is related to Human Capital (HC). Lithuania is associated with countries where a high level of shadow economy exists. This paper examines the issues of human capital development under conditions of shadow economy. The aim of this paper is to evaluate the power and effects of the Lithuanian shadow economy in the context of human capital and to assess the inter-dependence between the power of the shadow economy and human capital. The theoretical justification for research on the inter-dependence between the power of the shadow economy and human capital is based on the analysis of how changes in the human capital structure and indicators reflect the power of the shadow economy and vice versa. Theoretical analysis has been made on the main features and factors of shadow economy and possible tools of human capital evaluation. On the basis of theoretical findings, the model of shadow economy power has been created and using the linear regression method, the dependence of shadow economy power on human capital has been evaluated. The power of the shadow economy has been calculated as a function of population, GDP, trade, unemployment and the labor force. Variables of social development, such as demographic changes and risk of poverty, indicators of HC economic development and indicators of HC economic potential have been used for the research. For the evaluation of the interdependence of the variables, the years 2005–2012 were used. In evaluating human capital under the conditions of the shadow economy, a few periods have been identified and distinguished. Firstly, the results showed that the level of human capital education and unemployment can be described as the most important indicators that reflect the economic environment and shadow economy. Secondly, the increasing level of the shadow economy increases shadow unemployment, and this in turn influences the attraction of direct foreign investment. And finally, research on the influence of separate factors of the shadow economy on variables of human capital could disclose a deeper understanding of the impact of the shadow economy on human capital.

Highlights

Human capital (HC) is one of the most important drivers of economic growth
Measurement of the convergent validity between criminal offences and the variable of calculated shadow economy power showed that criminal offences related to the possession of narcotic or psychotropic substances and contraband explains a change in the shadow economy power
The statistical quality of the indicators representing people on the poverty line depending on education (ISCED97, level 3–4, level 6) shows that they can only be assessed as variables describing some tendency, the additive model combining the influence of all three on shadow economy power was created

Summary

Introduction

Human capital (HC) is one of the most important drivers of economic growth. In scientific economic literature there is a lack of studies analyzing how a shadow economy affects human capital, and what should be done in order to reduce the negative influence on human capital. It should be noted that formulas for estimating a shadow economy may be lacking face and content validity They may satisfy a criterion of demarcation, there are no objective conditions for their evaluation from a point of view considering the possible falsification or invalidity of a criterion. That permits the estimation of the amount and extent of a shadow economy’s power It was calculated as a function of population, GDP, trade, unemployment and the labour force. Using this formula, the estimated variable has made an assessment of the interdependence between human capital and a shadow economy possible. The study was financed by the Research Council of Lithuania (Institutional scientific research program – “Challenges of the Lithuanian economy’s long-term competitiveness”)

Literature review on the shadow economy and human capital

Calculation model used to assess shadow economy power

Departed

Findings

Conclusions and discussion