Shadow economy in the relationship with FDI, institutional quality, and income inequality: empirical evidence from asian countries

Abstract

This thesis aims at solving two main research objectives: (1) examine the causal relationship among FDI, institutional quality and shadow economy in Asian countries; (2) investigate the impact of shadow economy on income inequality and the channel of the impact in Asia. All of five research questions are satisfactorily answered. The results show that: (1) the author combines the three theories of investment, institutions and shadow economy with an integrative approach to investigate the three-way linkages between FDI, institutional quality and shadow economy in the context of Asian countries, formulating the mechanism these variables interact to foster economic growth; (2) the research finds out that shadow economies negatively affect income inequality by increasing the income share held by lowest quintile and decreasing the income share held by highest quintile; (3) other determinants of FDI, institutional quality, shadow economy and income inequality are also identified in the context of developing Asia. Drivers of FDI consist of domestic investment, GDP growth, labor force, labor quality, lower wages, trade openness, infrastructure and natural resources; (4) the panel simultaneous-equation modelling approach with both non-dynamic and dynamic forms is fitting to examine the three-way linkages amongst foreign direct investment, institutional quality and shadow economy because these variables are simultaneously determined.