Shadow economy in Palestinian territories using currency demand approach

Abstract

PurposeThe study aims at estimating the shadow economy (SE) using the method of demand for currency in Palestine for the period 2008–2018 by studying the relationship between a group of variables that affect the ratio of money traded outside the banking system to the money supply in the broad sense.Design/methodology/approachThe study has adopted analytical and descriptive research methods to estimate SE in Palestinian territories. The data has been obtained from the inflation reports issued by the Palestinian Monetary Authority for ten years, from 2008 to 2018. A standard model was constructed using EViews version 8 for statistical data processing after converting the annual data to quarterly data.FindingsThe authors demonstrated that the size of the SE in Palestinian territories has varied over time, and the annual average of its size during the study period reached about $1764.893 (in millions). This amount constitutes about 15.5% of the gross domestic product. The study provides recommendations for reducing the size of the SE in Palestinian territories.Practical implicationsThe current study shows that shadow economics could significantly matter for economic policy design by policymakers.Originality/valueThis study deals directly with Tanzi’s “estimation of shadow economy in Palestinian territories” concept and its impact on economic policies.

Shadow economy–financial sustainability nexus: the case of Palestine

“…A variety of literary phrases, including "irregular," "underground," "hidden" and "informal" have been used to define the shadow economy as stated by Abuamsha and Shumali (2022). While these terms are used interchangeably in this research, they refer only to legitimate value-added activities that do not include things like volunteering or engaging in illegal behavior.…”

“…Abu Amsha and Shumali (2022) have identified multiple factors that have led to the emergence of the shadow economy in Palestine. Khan and Rehman (2022) as well as Al-Husni (2017) have identified internal conflict, the Israeli occupation and the expansion of settlements as major contributing factors to the occurrence of smuggling.…”

“…Multiple studies have utilized various methodologies to estimate the extent of the shadow economy. Abu Amsha and Shumali (2022) estimated this extent as 15.5% of GDP using the currency demand method. This estimation was derived from the recurring deficit in the public budget and the rise of the public debt.…”

“…The decline in the public budget may well be attributed to several factors which can be the shadow economy, a decrease in foreign investment, occupation restrictions and political and economic instability. These facets have given rise to the appearance of the shadow economy phenomenon (Abu Amsha and Shumali, 2022). The main question addressed in this study is the impact of the shadow economy on the financial sustainability of the public budget in Palestine.…”

Editorial: Journal aim and scope and ongoing positioning

“…By the means of analytical and descriptive research methods to estimate the shadow economy in Palestinian territories, Abuamsha and Shumali (2022) studied the relationship between a group of variables that affect the ratio of money traded outside the banking system to the money supply in the broad sense.…”