An Analysis of The Shadow Economy in Malta: A Currency Demand and MIMIC Model Approach

Abstract

The paper applies two commonly used methods in the literature to estimate the shadow economy in Malta, the Currency Demand Approach and the Multiple Indicator Multiple Causes (MIMIC) model. Given the unobservable nature of the shadow economy, estimates are surrounded by a considerable degree of uncertainty. While these two methods differ somewhat on the historical evolution of the size of the Maltese shadow economy, which in turn can be traced back to their different underlying assumptions, both suggest that it has remained relatively stable over the last decade, standing at just below 21% of official GDP in 2019. Where possible, these estimates are compared to other studies on the same subject where we find that the dynamic properties of our variable follow those found in the literature.

Estimating the magnitude of money laundering in the United Arab Emirates (UAE): evidence from the currency demand approach (CDA)

“…Particularly, the results demonstrate that activities in the real estate market, arms importation, expansion of the national output and inflation rate are important drivers of money demand both in the short- and long-run. This finding supports the findings of existing studies (Gamal and Dahalan, 2015; Gamal, Dahalan and Viswanathan, 2019, 2020; Gauci and Rapa, 2020). In contrast, the results suggest that activities in the gold market, the outflow of money, interest rate and the size of the underground economy discourage the demand for money, both in the short and long run.…”

“…In contrast, the results suggest that activities in the gold market, the outflow of money, interest rate and the size of the underground economy discourage the demand for money, both in the short and long run. The negative relationship between money demand and deposit interest rate is consistent with economic theory and recent empirical studies (Gamal and Dahalan, 2015; Gauci and Rapa, 2020; Schneider and Hametner, 2014). However, the adverse effect of the size of underground economy on money demand is a likely scenario following the adoption of a cashless monetary policy in response to expansion in the demand for money underground activities.…”

Asymmetric Effect of Shadow Economy on Environmental Pollution in Egypt: Evidence from Bootstrap NARDL Technique

“…For instance, the effect of the energy consumption, industrial productivity, and technology use in reducing the quality of the environmental is well recognised in the academic and policy circle (Adams et al, 2016). More so, researchers have equally recognised the role of certain economic, social and political factors such as economic growth and development, income inequality, urbanisation and population density, globalisation, international trade, political instability, institutional quality, democracy, and human capital development, are influencing environmental pollution (Abidin et al, 2015;Adams et al, 2016;Goel et al, 2013;Haseeb and Azam, 2021;Pata and Caglar, 2021;Abela et al, 2022).…”