Acta Univ. Agric. Silvic. Mendelianae Brun. 2015, 63, 2043-2049

https://doi.org/10.11118/actaun201563062043
Published online 2015-12-26

Unofficial Economy Estimation by the MIMIC Model: the Case of Kenya, Namibia, Ghana and Nigeria

Dennis Nchor, Václav Adamec

Department of Statistics and Operations Research, Faculty of Business and Economics, Mendel University in Brno, Zemědělská 1, 613 00 Brno, Czech Republic

This study investigates the size and trend of the underground economies in selected African countries. Underground economies are present in all countries, but they are endemic in developing economies. Their presence is not necessarily bad for the economies, in which they prevail. It could however cause huge losses to government revenue and could also constitute serious violation of Labor regulations. The study uses the Multiple Indicators and Multiple Causes model (MIMIC), a variant of Simultaneous Equations Model (SEM). It involves two sets of variables: the observed variables and the indicator variables. The former include size of government, indirect tax rates, total tax rates, business regulation, interest rate on deposits, unemployment rate, quality of public services, and GDP per capita. The indicator variables were Labor participation rate in the official economy, the amount of cash held outside the banking system and growth in GDP per capita. This study found the average level of underground economies in Kenya, Namibia, Ghana and Nigeria as 33.7%, 29.1%, 36% and 47%, respectively. The estimated results show that the causes of shadow economic activities vary among the countries. The data was obtained from the World Bank country indicators and the International Financial Statistics.

Funding

The authors appreciate kind support from the Internal Grant Agency (IGA) of Mendel University in Brno [No. 35/2014].

References

15 live references