Abstract
This article investigates the links between the technological evolution and the importance of informal economic activities. We examine the influences of internet usage on the shadow economy in a global sample between 2002 and 2015. With this purpose, we mobilize the panel fixed-effects estimate and the panel corrected standard errors estimate (as a robustness check) for the analysis of 114 economies (and three sub-samples including high-income economies (HIEs), upper-middle-income economies (UMEs), and lower-middle-income economies (LMEs)). Our results indicate that the use of the internet generally has a negative impact on the shadow economy. This influence of internet is consistent across all institutional environments. Interestingly, technology is not spread through the shadow economy in the same way everywhere since we observe a U-shaped relationship between internet usage and the shadow economy. Our research shows that technology might also have a negative influence on official activities if its implementation is not combined with an appropriate institutional policy allowing policy-makers to avoid the technology-side effects.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Data availability
The data is provided from corresponding author upon reasonable requests.
Notes
Which is also named as shadow or underground economy.
We thank the anonymous reviewer for pointing this interesting aspect.
These indicators are: control of corruption, government effectiveness, political stability and absence of violence, rule of law, regulatory quality, voice and accountability.
One of a control variable of the shadow economy is Democracy. Since Author(s) do not have access to democracy index from Economist Intelligence Unit (EIU), while the voice and accountability from the World Bank is built based on information of democracy index of EIU. More importantly, “Voice and Accountability captures perceptions of the extent to which a country's citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association, and a free media” thus we use this indicator as alternative one.
Authors are thankful for the suggestions provided by the anonymous reviewers.
It is worth noticing that beside cross-sectional dependence, the literature suggests to check for the stationarity and cointegration of variables in panel data with long T. However, our sample has a short T (only 14 years), thus we do not carry out these tests in this analysis. We thank our anonymous reviewers for their comments on this matter.
Our robustness checks were consistent and robust – they can be provided on request.
In fact, an alternative strategy can be carried out in this case by using dummy variables for LMEs, UMEs, and HIEs and investigate their interaction with Internet usage. This strategy can help to compare the effects of Internet usage on the shadow economy across three income groups in comparison with global sample. In this study, we estimate the effect of Internet usage on the shadow economy by three subsamples. This choice cannot provide comparison with full sample, but it can account for any potential heteroscedastic effect of control variables on the shadow economy across three subsamples.
References
Abid, M. (2016). Energy Consumption-Informal Economic Growth Analysis: What Policy Options Do We Have? Journal of the Knowledge Economy, 7(1), 207–218. https://doi.org/10.1007/s13132-014-0211-x.
Abid, M. (2019). Estimating the Size of the Informal Trade Across the World: Evidence from a MIMIC Approach. Journal of the Knowledge Economy, 10(2), 618–669. https://doi.org/10.1007/s13132-017-0469-x.
Abraham, R. (2006). Mobile phones and economic development: Evidence from the fishing industry in India. 2006 International Conference on Information and Communication Technologies and Development, Berkeley, CA, US.
Aidis, R., Estrin, S., & Mickiewicz, T. M. (2012). Size matters: entrepreneurial entry and government. Small Business Economics, 39(1), 119–139. https://doi.org/10.1007/s11187-010-9299-y.
Akerman, A., Gaarder, I., & Mogstad, M. (2015). The skill complementarity of broadband internet. The Quarterly Journal of Economics, 130(4), 1781–1824.
Alognon, A. D. (2021). Essays on Pro-Poor Education Policies and Tax Compliance. Georgia State University.
Araujo, J. P., & Rodrigues, M. (2016). Taxation, credit constraints and the informal economy. EconomiA, 17(1), 43–55.
Arner, D. W., Buckley, R. P., Zetzsche, D. A., & Veidt, R. (2020). Sustainability, FinTech and Financial Inclusion. European Business Organization Law Review, 21(1), 7–35.
Beck, N., & Katz, J. N. (1995). What to do (and not to do) with time-series cross-section data. American political science review, 89(3), 634–647.
Berdiev, A. N., & Saunoris, J. W. (2016). Financial development and the shadow economy: a panel VAR analysis. Economic Modelling, 57, 197–207.
Bonk, C. J. (2009). The world is open: how web technology is revolutionizing education. Association for the Advancement of Computing in Education (AACE).
Bruce, D., Fox, W., & Murray, M. (2003). To tax or not to tax? The case of electronic commerce. Contemporary Economic Policy, 21(1), 25–40.
Brynjolfsson, E., & Smith, M. D. (2000). Frictionless commerce? A comparison of internet and conventional retailers. Management Science, 46(4), 563–585.
Buehn, A., & Schneider, F. (2012). Shadow economies around the world: novel insights, accepted knowledge, and new estimates. International Tax and Public Finance, 19(1), 139–171. https://doi.org/10.1007/s10797-011-9187-7.
Bukovina, J. (2016). Social media big data and capital markets—An overview. Journal of Behavioral and Experimental Finance, 11, 18–26.
Canh, N. P., & Thanh, S. D. (2020). Financial development and the shadow economy: A multi-dimensional analysis. Economic Analysis and Policy, 67, 37–54.
Canh, N. P., Thanh, S. D., Schinckus, C., Bensemann, J., & Thanh, L. T. (2019). Global Emissions: A New Contribution from the Shadow Economy. International Journal of Energy Economics and Policy, 9(3), 320–337.
Canh, P. N., & Dinh Thanh, S. (2020). Exports and the shadow economy: Non-linear effects. The Journal of International Trade & Economic Development, 29(7), 865–890. https://doi.org/10.1080/09638199.2020.1759676.
Canh, P. N., Schinckus, C., & Dinh Thanh, S. (2021). What are the drivers of shadow economy? A further evidence of economic integration and institutional quality. The Journal of International Trade & Economic Development, 30(1), 47–67. https://doi.org/10.1080/09638199.2020.1799428.
Cardona, M., Kretschmer, T., & Strobel, T. (2013). ICT and productivity: conclusions from the empirical literature. Information Economics and Policy, 25(3), 109–125.
Chaudhry, P. E. (2017). The looming shadow of illicit trade on the internet. Business Horizons, 60(1), 77–89.
Choi, J. P., & Thum, M. (2005). Corruption and the shadow economy. International Economic Review, 46(3), 817–836.
Choo, K. K. R., Smith, R. G., McCusker, R., & Choo, K. K. R. (2007). Future directions in technology-enabled crime: 2007-09. Citeseer.
Christensen, C., Raynor, M. E., & McDonald, R. (2013). Disruptive innovation. Harvard Business Review Brighton.
Clarke, G. R., & Wallsten, S. J. (2006). Has the internet increased trade? Developed and develo** country evidence. Economic Inquiry, 44(3), 465–484.
Codagnone, C., Biagi, F., & Abadie, F. (2016). The passions and the interests: Unpacking the'sharing economy'. Institute for Prospective Technological Studies, JRC Science for Policy Report. Available at SSRN: https://ssrn.com/abstract=2793901 or https://doi.org/10.2139/ssrn.2793901.
Cohen, S., & Eimicke, W. (2001). The use of the Internet in government service delivery. In M. A. Abramson & A. M. Kieffaber (Eds.), New Ways of Doing Business. Rowman & Littlefield Publishers.
Colombo, E., Onnis, L., & Tirelli, P. (2016). Shadow economies at times of banking crises: Empirics and theory. Journal of Banking & Finance, 62, 180–190. https://doi.org/10.1016/j.jbankfin.2014.09.017.
Cumming, D., Sofia Johan. (2010). The differential impact of the internet on spurring regional entrepreneurship. Entrepreneurship Theory and Practice, 34(5), 857–884.
Dell’Anno, R., & Davidescu, A. A. (2019). Estimating shadow economy and tax evasion in Romania. A comparison by different estimation approaches. Economic Analysis and Policy, 63, 130–149. https://doi.org/10.1016/j.eap.2019.05.002.
Dewan, S., & Riggins, F. J. (2005). The digital divide: Current and future research directions. Journal of the Association for information systems, 6(12), 298–337. http://aisel.aisnet.org/jais/vol6/iss12/4.
Dreher, A., Kotsogiannis, C., & McCorriston, S. (2009). How do institutions affect corruption and the shadow economy? International Tax and Public Finance, 16(6), 773. https://doi.org/10.1007/s10797-008-9089-5.
Economist, T. (2019). How the internet led to greater wage inequality. Retrieved 21th Mar from Available at https://amp.economist.com/business/2019/03/16/how-the-internet-led-to-greater-wage-inequality.
Elgin, C. (2012). Cyclicality of the informal economy. In Bogazici University Working Papers. İstanbul, Turkey: Department of Economics, Bogazici University. Available at http://ideas.econ.boun.edu.tr/content/wp/EC2012_02.pdf.
Elgin, C. (2013). Internet usage and the shadow economy: Evidence from panel data. Economic Systems, 37(1), 111–121. https://doi.org/10.1016/j.ecosys.2012.08.005.
Fang, Z., Razzaq, A., Mohsin, M., & Irfan, M. (2022). Spatial spillovers and threshold effects of internet development and entrepreneurship on green innovation efficiency in China. Technology in Society, 68, 101844. https://doi.org/10.1016/j.techsoc.2021.101844.
Feldman, D. C., & Klaas, B. S. (2002). Internet job hunting: A field study of applicant experiences with on-line recruiting. Human Resource Management: Published in Cooperation with the School of Business Administration The University of Michigan and in alliance with the Society of Human Resources Management, 41(2), 175–192.
Fleming, M. H., Roman, J., & Farrell, G. (2000). The shadow economy. Journal of International Affairs, 1, 387–409.
Freund, C., & Weinhold, D. (2002). The Internet and international trade in services. American Economic Review, 92(2), 236–240. https://doi.org/10.1257/000282802320189320.
Friedman, E., Johnson, S., Kaufmann, D., & Zoido-Lobaton, P. (2000). Dodging the grabbing hand: the determinants of unofficial activity in 69 countries. Journal of public economics, 76(3), 459–493. https://doi.org/10.1016/S0047-2727(99)00093-6.
Goel, R. K., & Saunoris, J. W. (2016). Government Decentralization and Prevalence of the Shadow Economy. Public Finance Review, 44(2), 263–288. https://doi.org/10.1177/1091142114545677.
Goolsbee, A. (2001). The implications of electronic commerce for fiscal policy (and vice versa). Journal of Economic Perspectives, 15(1), 13–23. https://doi.org/10.1257/jep.15.1.13.
Gupta, M. S., & Abed, M. G. T. (2002). Governance, corruption, and economic performance. International Monetary Fund.
Huynh, C. M., Nguyen, V. H. T., Nguyen, H. B., & Nguyen, P. C. (2020). One-way effect or multiple-way causality: foreign direct investment, institutional quality and shadow economy? International Economics and Economic Policy, 17, 219–239. https://doi.org/10.1007/s10368-019-00454-1.
Jaumotte, F., Lall, S., & Papageorgiou, C. (2013). Rising Income Inequality: Technology, or Trade and Financial Globalization? [journal article]. IMF Economic Review, 61(2), 271–309. https://doi.org/10.1057/imfer.2013.7.
Jha, C. K., & Sarangi, S. (2017). Does social media reduce corruption? Information Economics and Policy, 39, 60–71. https://doi.org/10.1016/j.infoecopol.2017.04.001.
Kanyam, D. A., Kostandini, G., & Ferreira, S. (2017). The mobile phone revolution: have mobile phones and the internet reduced corruption in Sub-Saharan Africa? World Development, 99, 271–284. https://doi.org/10.1016/j.worlddev.2017.05.022.
Kaufmann, D., Kraay, A., & Mastruzzi, M. (2011). The worldwide governance indicators: methodology and analytical issues. Hague Journal on the Rule of Law, 3(02), 220–246. https://doi.org/10.1017/S1876404511200046.
Kuhn, P., & Skuterud, M. (2004). Internet Job Search and Unemployment Durations. American Economic Review, 94(1), 218–232. https://doi.org/10.1257/000282804322970779.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1999). The quality of government. The Journal of Law Economics and Organization, 15(1), 222–279. https://doi.org/10.1093/jleo/15.1.222.
Luo, Z., & Schinckus, C. (2015). Herding behaviour in asymmetric and extreme situations: the case of China. Applied Economics Letters, 22(11), 869–873. https://doi.org/10.1080/13504851.2014.985363.
McMullan, M. (2006). Patients using the Internet to obtain health information: how this affects the patient–health professional relationship. Patient education and counseling, 63(1–2), 24–28. https://doi.org/10.1016/j.pec.2005.10.006.
Medina, L., & Schneider, F. (2018). Shadow Economies Around the World: What Did We Learn Over the Last 20 Years? IMF Working Paper, 18/17. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3124402.
Naimi-Sadigh, A., Asgari, T., & Rabiei, M. (2021). Digital transformation in the value chain disruption of banking services. Journal of the Knowledge Economy. https://doi.org/10.1007/s13132-021-00759-0.
Nguyen, B., Canh, N. P., & Thanh, S. D. (2020). Institutions, Human Capital and Entrepreneurship Density. Journal of the Knowledge Economy. https://doi.org/10.1007/s13132-020-00666-w.
Nguyen, C. P., & Su, T. D. (2021). When ‘uncertainty’ becomes ‘unknown’: Influences of economic uncertainty on the shadow economy. Annals of Public and Cooperative Economics, in press. https://doi.org/10.1111/apce.12336.
Nguyen, C., Nguyen Quang, B., & Su, T. (2023). Institutional frameworks and the shadow economy: new evidence of colonial history, socialist history, religion, and legal systems. Journal of Industrial and Business Economics. https://doi.org/10.1007/s40812-023-00274-0.
Nkengfack, H., Fotio, K., H., & Totouom, A. (2020). How Does the Shadow Economy Affect Environmental Quality in Sub-Saharan Africa? Evidence from Heterogeneous Panel Estimations. Journal of the Knowledge Economy. https://doi.org/10.1007/s13132-020-00685-7.
Oliner, S. D., & Sichel, D. E. (2003). Information Technology and Productivity Where Are We Now and Where Are We Going? In D. K. Ginther, M. Zavodny, & L. H. Foley (Eds.), Technology, Growth, and the Labor Market. Springer.
Pesaran, M. H. (2021). General diagnostic tests for cross section dependence in panels. Empirical economics, 60, 13–50. https://doi.org/10.1007/s00181-020-01875-7.
Poliquin, C. W. (2018). The Effect of the Internet on Wages. University of California working paper. Available at https://www.chrispoliquin.com/files/poliquin_jmp.pdf.
Russ, M. (2017). The Trifurcation of the Labor Markets in the Networked, Knowledge-Driven, Global Economy. Journal of the Knowledge Economy, 8(2), 672–703. https://doi.org/10.1007/s13132-016-0434-0.
Salahodjaev, R. (2015). Intelligence and shadow economy: A cross-country empirical assessment. Intelligence, 49, 129–133. https://doi.org/10.1016/j.intell.2015.01.010.
Saundry, R., Stuart, M., & Antcliff, V. (2007). Broadcasting discontent—freelancers, trade unions and the Internet. New Technology Work and Employment, 22(2), 178–191. https://doi.org/10.1111/j.1468-005X.2007.00192.x.
Schinckus, C. (2009). La finance comportementale ou le développement d’un nouveau paradigme, Ed. Sc. Humaines, Revue d'Histoire des Sciences Humaines, 2009/1 (20), 101–127. https://doi.org/10.3917/rhsh.020.0101.
Schinckus, C. (2020). The good, the bad and the ugly: An overview of the sustainability of blockchain technology. Energy Research & Social Science, 69, 101614.
Schneider, F. (1994). Measuring the size and development of the shadow economy. Can the causes be found and the obstacles be overcome? In H. Brandstätter & W. Güth (Eds.), Essays on economic psychology (pp. 193–212). Springer.
Schneider, F. (2015). Size and Development of the Shadow Economy of 31 European and 5 Other OECD Countries from 2003 to 2014: Different Developments? Journal of Self-Governance & Management Economics, 3(4), 7–29.
Schneider, F., & Enste, D. H. (2000). Shadow economies: size, causes, and consequences. Journal of economic literature, 38(1), 77–114. https://doi.org/10.1257/jel.38.1.77.
Schneider, F., & Williams, C. (2013). The Shadow Economy. The Institute of Economic Affairs, Edward Elgar.
Sheehan, K. M., & Young, A. T. (2015). It's a small world after all: internet access and institutional quality Contemporary Economic Policy, 33(4), 649–667. https://doi.org/10.1111/coep.12095.
Slemrod, J., Collins, B., Hoopes, J. L., Reck, D., & Sebastiani, M. (2017). Does credit-card information reporting improve small-business tax compliance? Journal of Public Economics, 149, 1–19. https://doi.org/10.1016/j.jpubeco.2017.02.010.
Suvankulov, F., Chi Keung Lau, M., & Chau, H. C. (2012). Job search on the internet and its outcome. Internet Research, 22(3), 298–317. https://doi.org/10.1108/10662241211235662.
Švarc, J., & Dabić, M. (2017). Evolution of the Knowledge Economy: a Historical Perspective with an Application to the Case of Europe. Journal of the Knowledge Economy, 8(1), 159–176. https://doi.org/10.1007/s13132-015-0267-2.
Tan, Y., & Li, X. (2022). The impact of internet on entrepreneurship. International Review of Economics & Finance, 77, 135–142. https://doi.org/10.1016/j.iref.2021.09.016.
Tanzi, V. (1982). The underground economy in the United States and abroad. Lexington Books.
Tanzi, V. (1999). Uses and abuses of estimates of the underground economy. The Economic Journal, 109(456), 338–347.
Thomas, M. A. (2010). What do the worldwide governance indicators measure. European Journal of Development Research, 22(1), 31–54. https://doi.org/10.1057/ejdr.2009.32.
Torgler, B., & Schneider, F. (2009). The impact of tax morale and institutional quality on the shadow economy Journal of Economic Psychology, 30(2), 228–245. https://doi.org/10.1016/j.joep.2008.08.004.
Zott, C., Amit, R., & Massa, L. (2011). The business model: recent developments and future research. Journal of management, 37(4), 1019–1042.
Wang, J., Hu, Y., & **ong, J. (2022). The internet use, social networks, and entrepreneurship: evidence from China. Technology Analysis & Strategic Management. https://doi.org/10.1080/09537325.2022.2026317.
Zetzsche, D. A., Buckley, R. P., Arner, D. W., & Barberis, J. N. (2017). Regulating a revolution: From regulatory sandboxes to smart regulation. Fordham Journal of Corporate and Financial Law, 23(1), 31–103.
Funding
Canh Phuc Nguyen, Binh Quang Nguyen and Duyen Thuy Le Tran receive funding from the University of Economics Ho Chi Minh City, Ho Chi Minh City (700000), Vietnam.
Author information
Authors and Affiliations
Corresponding author
Ethics declarations
Conflict of interest
There is no conflict of interest.
Additional information
Publisher’s Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Appendix
Appendix
See Table 6, 7, 8, 9, 10, 11, 12.
Rights and permissions
Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
About this article
Cite this article
Nguyen, C.P., Schinckus, C., Nguyen, Q.B. et al. Digitalization and informal economy: a global evidence of internet usage. J. Ind. Bus. Econ. 51, 1–37 (2024). https://doi.org/10.1007/s40812-023-00278-w
Received:
Revised:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s40812-023-00278-w