Revisiting the nexus between globalisation and the shadow economy: Untying the influences of de jure versus de facto globalisation

Abstract

AbstractThis paper examines the relationship between globalisation and the size of the shadow economy, focusing on the differential effects of de jure and de facto globalisation. Using panel data on over 120 countries from 1991 to 2017, the results suggest that globalisation reduces the prevalence of the shadow economy. Furthermore, after differentiating between de jure and de facto globalisation, we find that both de facto and de jure globalisation are effective in curbing the spread of the shadow economy, with de jure globalisation showing a marginally larger impact. However, once we disaggregate the sample into OECD and non‐OECD countries, the results show that it is mainly the OECD countries driving this result while the influence of globalisation is statistically insignificant in non‐OECD countries. These results withstand a series of robustness analyses and offer important policy implications.