Economic complexity and shadow economy: A multi-dimensional analysis

Our paper is the first attempt to examine the non-linear effects of economic complexity on the shadow economy. By applying diverse econometric techniques to a global sample of 42 low-income & lower-middle-income (LI&LMICs) and 30 upper-middle-income (UMICs) and 38 high-income (HICs) during the 2002-2017 period, our findings confirm the presence of a non-linear association between economic complexity outlook index and the shadow economy while economic complexity index has an increasingly significant and negative influence on shadow economy. Furthermore, a non-linear relationship between economic complexity and the shadow economy more likely exists either in the long run or in the high-income economy. Notably, we find that economic complexity plays a critical role in deteriorating the positive effects of uncertainty on the size of the shadow economy, while institutional quality significantly determines the effect of economic complexity. (C) 2021 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved.