The Impact of Financial Development on the Shadow Economy in Selected Member Countries of the Organisation of Islamic Cooperation

Abstract

The development of the financial system facilitates access to financial instruments and services for individuals and firms. In this context, it is expected that the potential to benefit from the advantages provided by the financial system reduces the attractiveness of informal activities for economic agents and encourages participation in the formal economy. This study examines the impact of financial development on the shadow economy in nine selected member countries of the Organisation of Islamic Cooperation (OIC) over the period 1990–2020. By employing the Panel Fourier Cointegration test, which accounts for the smooth transitions of structural breaks, and applying this method for the first time within this sample, the long-run relationship between the financial development index and the shadow economy is analysed. Empirical findings reveal that financial development significantly reduces the size of the shadow economy in Bahrain, Indonesia, Malaysia, Oman, Pakistan, Qatar, and Saudi Arabia, underscoring the critical role of the financial sector in promoting economic formalisation. In the case of Turkey, although financial development appears to be associated with a reduction in informality, this effect is not statistically significant, suggesting that structural and institutional constraints may impede the effectiveness of financial development. Conversely, in the United Arab Emirates, financial development seems to expand the shadow economy, which may be attributed to factors such as offshore financial activities and regulatory gaps. The results highlight the necessity of enhancing financial inclusion, implementing country-specific structural reforms, and strengthening regulatory frameworks in order to effectively combat informality within different economic contexts in OIC countries.

Keywords

• Financial Development
• Shadow Economy
• Panel Fourier Cointegration Test
• The Organisation of Islamic Cooperation

Seçili İslam İşbirliği Teşkilatı Üyesi Ülkelerde Finansal Gelişmenin Kayıt Dışı Ekonomiye Etkisi

Öz

Finansal sistemin gelişimi, bireylerin ve firmaların finansal araçlara ve hizmetlere erişimini kolaylaştırmaktadır. Bu durum, finansal sistemin sağladığı avantajlardan yararlanma potansiyeli nedeniyle, ekonomik aktörler için kayıt dışı faaliyetlerin cazibesini azaltarak kayıtlı ekonomiye katılımı teşvik etmesi beklenmektedir. Bu çalışma, İslam İşbirliği Teşkilatı (İİT) üyesi seçilmiş 9 ülkede 1990-2020 dönem aralığında finansal gelişmenin kayıt dışı ekonomi üzerindeki etkisini incelemektedir. Bu çalışma, yapısal kırılmaların yumuşak geçişlerini dikkate alan Panel Fourier eşbütünleşme testini bu örneklem ölçeğinde ilk kez kullanarak, finansal gelişmişlik endeksi ile kayıt dışı ekonomi arasındaki uzun dönemli ilişkiyi analiz etmektedir. Ampirik bulgular, Bahreyn, Endonezya, Malezya, Umman, Pakistan, Katar ve Suudi Arabistan’da finansal gelişmenin kayıt dışı ekonomi büyüklüğünü anlamlı bir şekilde azalttığını ortaya koymakta ve finans sektörünün ekonomik formalleşmeyi desteklemedeki kritik rolünü vurgulamaktadır. Türkiye örneğinde ise finansal gelişmenin kayıt dışılığın azalmasıyla ilişkili olduğu gözlemlenmektedir. Ancak bu etki, istatistiksel olarak anlamlı değildir. Bu bulgu, yapısal ve kurumsal kısıtlamaların finansal gelişmenin etkilerinin önüne geçebileceğini göstermektedir. Buna karşılık, Birleşik Arap Emirlikleri'nde finansal gelişmenin kayıt dışı ekonomiyi genişlettiği görülmekte olup bu durumun offshore finansal faaliyetler ve düzenleyici boşluklar gibi faktörlerden kaynaklanabileceği düşünülmektedir. Elde edilen sonuçlar, İİT ülkelerinde farklı ekonomik bağlamlar içinde kayıt dışılıkla etkili bir şekilde mücadele edebilmek için finansal kapsayıcılığın artırılması, ülkeye özgü yapısal reformların hayata geçirilmesi ve düzenleyici çerçevelerin sağlamlaştırılması gerekliliğinin altını çizmektedir.

Anahtar Kelimeler

• Finansal Gelişme
• Kayıt Dışı Ekonomi
• Panel Fourier Eşbütünleşme Testi
• İslam İşbirliği Teşkilatı

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