Using currency demand to estimate the Palestine underground economy: An econometric analysis
Date
2020-03-31
Authors
Awad, Ibrahim M.
Alazzeh, Wael
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Abstract
The existence of an underground economy may hide the official number of
unemployed persons, their share in the labour force, and wages. It also gives rise to the
economic and social conditions of individuals, household and countries, which are evaluated
in a biased way if one relies on the official statistics. In this paper, we use the currency
demand model of Tanzi to estimate the underground economy in Palestine over the period:
(2008–2017). Toward that end, a group of econometric techniques of time series data was
applied. The main empirical results show that the underground economy reached up to
28.6% in 2010 of the GDP with about USD 2676.227 million. The empirical study results also
reveal that the explanatory variables listed in the study model suggested by economic theory
and previous research have a significant impact on the dependent one, except the variable
ratio of governmental wages and salaries to GDP. However, the money received by the
government employees does not contribute to the underground economy.