e-ISSN 2231-8542
ISSN 1511-3701
Yap, W. W. Sarmidi, T., Nor, A. H. S. M. and Said, F. F.
Pertanika Journal of Tropical Agricultural Science, Volume 25, Issue 3, September 2017
Keywords: Malaysia, MIMIC, state shadow economy
Published on: 22 Aug 2017
Literature on the estimation of the size of shadow economy at national level is well studied. However, estimation of the size of shadow economy at state level is still scarce. This study attempts to estimate the size of shadow economy to state GDP ratio for the states of Malaysia by employing the Multiple - Indicators - Multiple - Causes (MIMIC) model using panel data from 13 states of Malaysia from 2006 to 2013. Additionally, the relationship between size of state shadow economy and other state level variables was investigated and analysed. Several findings were obtained. First, rural population and rural labour play significant roles in contributing to the development of shadow economy in the states of Malaysia. Second, smaller and more advanced states have smaller shadow economy to state GDP ratio, while the two East Malaysia states, Sabah and Sarawak, are by far the states with the largest shadow economy to state GDP ratio among all Malaysia states. Third, shadow economy is positively affected by crime index and primary sector productions, and negatively affected by state GDP growth. State shadow economy decreases if the state is ruled by opposition party. This study suggests better regulations in rural economy, rural labour, criminal activities and primary sector contributions to reduce shadow economy activities in the states of Malaysia.
ISSN 1511-3701
e-ISSN 2231-8542