The Analysis of The Effect of Unemployment Rate on The Shadow Economy in Selected Developing Countries

The shadow economy is a real phenomenon with significant and complex concepts that requires deep study and attention. For all the Countries of the world especially developing countries which possess a more expanded volume of these activities, always there are concerns about the growing tendency of shadow economy. Due to the hidden nature of the shadow economy and its unregistration, official statistics don’t reveal the exact status of the governmental economy and since these statistics are applied to policy- making, inexact figures and information can lead to inappropriate political responses. In the present paper, the aim is to investigate the effect of unemployment rate on the shadow economy in 67 developing countries in period of 1999-2009. The paper’s data analysis is System Generalized Method of Moments (System GMM) approach. By and large, the results of this approach show that in the countries under study the unemployment rate has a positive effect on the shadow economy.