Measuring the size of the hidden economy in Trinidad & Tobago, 1973–1999

Abstract

In this paper, an attempt is made to measure the hidden economy of Trinidad & Tobago over the period 1973-1999, within the Structural Cointegrating VAR (SCVAR) framework. Using a Tanzi-type currency demand approach as a starting point, a multiple equation SCVAR model is estimated that contains two longrun relationships linking the demand for currency with other variables. The model is evaluated on the basis of its persistence profiles, its impulse responses and other statistical criteria. It is solved using a Gauss-Siedel algorithm and is used to establish that the size of the hidden economy rose from a low of about 14% of measured GDP in the early 1970s to a high of 36% in 1981, and is currently about 20% of measured GDP. Hidden economic activity is also found to be highly positively correlated with activity in the regular economy.JEL CLASSIFICATION: C51, C52, E26, E60, O54.

Small-Business Participation in the Informal Sector of an Emerging Economy

“…Since the results show that business-owners in the distribution sector are the most likely to be involved in the informal sector, such policies probably need to be sector-based and aimed at engendering efficient management, promoting linkages between firms in the formal and informal sectors and ensuring that there is some targeted support, such as assistance with certain aspects of the management of the business. 2 Various labels have been used to describe what, in this paper, we call the informal sector: the informal economy (Kim 2005), the hidden economy (Maurin et al 2006), the subterranean economy (Gutmann, 1977), the shadow economy (Schneider 2005), the black economy (Pissarides and Weber, 1989). 3 The Central Statistical Office of Trinidad and Tobago defines a small enterprise as one that employs five or less persons.…”

“…4 Maurin et al (2006) use the currency demand model to estimate the size of the informal sector in Trinidad and Tobago for the period 1973-1999. 5 Other studies carried out on Trinidad and Tobago include Rampersad (1987), Lloyd-Evans and Potter (2002) and Maurin et al (2006). 6 Hoyman (1987 finds that women are likely to engage in informal activities at the same level as men, if not more, in some instances.…”

“…It was therefore strong on assuring the anonymity of the respondents and ensuring that the data requested for all of the potentially sensitive questions (age, income earned etc) were categorized, thus increasing the probability of a truthful response. The current study may also be compared with studies of emerging economies which employ macroeconomic (time series) data and methods to estimate the size of the informal sector (Maurin et al 2006). However, studies which use macro level data cannot give details about the characteristics of the participants as is done here.…”

Characteristics of households in the informal sector of an emerging economy

“…The current study may also be compared with studies of emerging economies which employ macroeconomic (time series) data and methods to estimate the size of the informal sector (Maurin et al 2006).…”

“…In this paper we concentrate solely on households participating in the informal sector. 4 See Rampersad (1987), Lloyd-Evans and Potter (2002) and Maurin et al (2006). formulated specifically to obtain data from informal sector participants, in the spirit of Kazamier and van Eck (1992): it was strong on assuring the anonymity of the respondents and ensuring that the data requested for all of the sensitive questions (age, income earned etc)…”