Shadow Economy, Transaction Sector, and Economic Convergence: Evidence from a Global Panel of Countries

This study examines GDP per capita convergence by adjusting the official data by the size of the shadow economy and the transaction sector. The findings demonstrate the reduction of income per capita absolute distance from the relevant benchmarks and smaller income per capita dispersion in a global panel and sub-groups. The intra-distributional mobility of economies and the gamma convergence were absent. The stochastic convergence was observed in all specifications, both vis-a-vis the world average or the high-income economies. With regard to club convergence, the stability of the relative transition paths and the club composition were indicated (hence, little convergence across the clubs and more substantial convergence within the clubs).