Trade openness and the shadow economy in BRICS: Complements or substitutes?

Abstract:

This paper examines the impact of trade openness on the shadow economy in the BRICS countries from 1996 to 2018, using Bayesian panel regression. The results indicate that trade openness is effective in reducing the expansion of the shadow economy. Furthermore, when we replaced the measure of trade openness with the trade globalization index from the KOF Globalization Index, the findings remained consistent. Therefore, policies aimed at reducing trade barriers may benefit countries seeking to curb shadow economy activities. Additionally, our findings suggest that per capita income, internet penetration rate, and government effectiveness are also factors that can help reduce shadow economy activities in the BRICS countries.