The hidden economy in Jordan: A MIMIC approach

Figures & data

Table 1. Hidden economies in Jordan and Middle Eastern Countries

Country	2009	2010	2011	2012	2013	2014	2015	2016	2017	Country Average
Bahrain	16.4	15.9	14.6	14.4	13.9	14.1	15.4	15.6	15.1	17.3
Israel	20.5	19.2	17.7	18.3	17.7	17.1	17.6	17.6	17	21.4
Jordan	15.9	15.5	15.1	14.6	14.4	14.1	14.4	14.9	14.9	17.3
Kuwait	17.3	16.7	15.3	14.9	15.5	16.6	18.9	19.4	18.9	18.6
Lebanon	28.1	27.2	27.1	27.3	27.6	28.2	28.7	28.9	28.6	32.1
Oman	15.7	14.1	13.5	13.3	13.7	14.8	17.3	18.4	17.4	17.7
Qatar	16.9	15.8	13.8	13.1	13.5	13.9	16.3	16.8	16.6	17.8
Saudi Arabia	15	13.8	12.7	12.2	12.7	13.4	15.6	14.8	15.1	16.3
Syria	18.3	18.5	18.7	19.1	19.6	19.3	19.4	20	20	19.3
United Arab Emirates	26.1	25.9	23.1	22	21.5	20.8	23.1	22.7	22.1	25.7
Yemen	24.4	23.1	23.3	22.9	21.8	21.5	22.1	25.4	26.6	26.2

^Source:Medina and Schneider (2019)^.

Figure 1. The MIMIC model. source: .Schneider and Buehn (2013)

Table 2. The MIMIC model results for Jordan’s economy from 1980–2018

Variable/Specification	MIMIC1 7-1-3	MIMIC1 7-1-2	MIMIC2 6-1-2	MIMIC3 6-1-2	MIMIC4 6-1-2	MIMIC5 5-1-2
Causal Variables
Budget deficit (DEF)	−1.09 (−1.53)	0.99** (2.43)	−1.07 (−1.46)	1.09*** (3.54)	1.07*** (2.98)	1.10*** (2.49)
Total tax revenue (TREV)	3.34** (2.45)	3.65*** (12.16)	3.70*** (11.34)	3.71*** (11.72)	3.73*** (10.30)	3.69*** (9.62)
Inflation rate (IN)	0.25** (1.99)	0.22 (1.58)	0.21* (1.86)	0.23*** (2.65)	0.25 (0.92)	0.27** (1.97)
Female participation (FP)	−0.93*** (−7.10)	−0.62*** (−7.10)	−0.74*** (−8.27)	−0.76*** (−8.56)	−0.78*** (−8.89)	−0.81*** (−9.09)
Unemployment rate (UNEMP)	0.18** (2.12)	0.13 (1.01)	0.12 (1.11)	0.18** (2.43)	0.15*** (2.78)	0.19** (2.51)
Interest rate on savings (I)	1.54 (1.55)	0.94 (1.15)	0.75 (1.38)		0.78** (2.13)
Jordanian dinar’s decline (DY)	0.26 (1.43)	0.14 (1.06)		0.19** (2.21)
Indicator Variables
Growth rate of real GDP (GRGDP)	−1	−1	−1	−1	−1	−1
Growth rate of private consumption (GRCON)	1.32 (1.28)
Growth rate of real currency in circulation (GRCR)	0.13*** (8.60)	0.08*** (7.51)	0.07*** (8.01)	0.09*** (7.93)	0.11*** (7.88)	0.12*** (7.38)
Statistical Tests
RMSEA	0.16	0.15	0.21	0.19	0.21	0.01
Chi-square (P-value)	19.89 (0.0015)	18.77 (0.0648)	14.10 (0.0831)	11.60 (0.0147)	12.98 (0.0564)	9.66 (0.3154)
NFI	0.73	0.85	0.93	0.93	0.87	0.90
GFI	0.77	0.87	0.88	0.91	0.86	0.95
AGFI	0.90	0.92	0.95	0.95	0.95	0.92

^{Note: T statistics are in parentheses. * Significant at the 90% level; ** significant at the 95% level, and *** significant at the 99% level.}

Table 3. The size of the hidden economy as a percentage of GDP

Year	Hidden Economy GDP (%)	Hidden Economy Value (Million Jordanian Dinar)
1980	11.8	134,106,485.56
1981	12.3	156,249,135.11
1982	12.4	168,462,512.94
1983	13.1	187,254,475.96
1984	13.3	191,897,284.76
1985	13.6	264,229,994.64
1986	14.0	348,616,594.25
1987	14.3	375,547,808.09
1988	14.5	355,489,617.43
1989	15.0	246,859,436.06
1990	15.3	419,088,778.65
1991	15.8	453,333,809.37
1992	15.0	533,251,212.82
1993	15.4	577,115,075.12
1994	15.8	657,756,673.60
1995	16.3	779,582,810.72
1996	16.8	828,308,078.31
1997	17.2	885,728,008.76
1998	18.5	1,040,260,307.81
1999	19.4	1,122,240,473.91
2000	18.8	1,131,573,662.10
2001	18.5	1,181,320,329.30
2002	18.7	1,270,142,452.40
2003	18.9	1,367,524,574.78
2004	19.5	1,576,340,451.03
2005	19.9	1,773,879,033.04
2006	19.9	2,130,163,721.28
2007	20.2	2,458,622,734.43
2008	20.3	3,166,723,390.00
2009	20.5	3,471,222,063.40
2010	20.4	3,828,386,705.62
2011	20.6	4,211,284,860.61
2012	20.8	4,557,590,201.89
2013	21.3	5,070,845,933.11
2014	21.5	5,467,097,025.88
2015	21.7	5,787,028,960.36
2016	22.0	6,026,300,799.62
2017	22.2	6,325,115,483.43
2018	22.4	6,623,192,234.76

^{Source: Authors’ calculations.}

Figure 2. Trends in the hidden economy in Jordan GDP (%).

Figure 3. Trends in the value of jordan’s hidden economy (Million Jordanian Dinar).

Figure 4. Trend in the hidden economy of Jordan and the GDP growth rate.

Table 4. Comparison of the estimated hidden economy in Jordan according to various studies % of GDP

	1999	2000	2001	2002	2003	2004	2005	2006	2007	Average
Our study	19.4	18.8	18.5	18.7	18.9	19.5	19.9	19.9	20.2	19.3
Medina and Schneider (2018)	-	-	-	-	-	16.09	14.91	14.71	13.66	14.8
Medina and Schneider (2019)	19.4	19.5	19.3	19.5	18.8	17.7	16.7	16.6	16	18.2
Alkhdour (2011)	19.4	20.4	20.2	19.7	19.7	19.5	19.8	20.2	20.8	20
Schneider et al. (2010)a	19.4	19.4	19.6	19.9	20.1	20.6	20.9	21.4	21.7	20.3
Schneider (2007)	19.4	19.4	20.5	21.6	21.2	20.4	-	-	-	20.4

Figure 5. Comparison of the estimated hidden economy in Jordan according to various studies (% of GDP).

Table 5. Summary of results

Hypothesis	Reported Sign
A higher budget deficit positively influences the size of Hidden economy in Jordan, ceteris paribus.	(+)
A higher total tax revenue positively influences the size of Hidden economy in Jordan, ceteris paribus.	(+)
A higher inflation rate positively influences the size of Hidden economy in Jordan, ceteris paribus.	(+)
A higher female labor force participation negatively influences the size of Hidden economy in Jordan, ceteris paribus.	(-)
A higher unemployment rate positively influences the size of Hidden economy in Jordan, ceteris paribus.	(+)
A higher interest rate positively influences the size of Hidden economy in Jordan, ceteris paribus.	(NS)
The decline in the Jordanian dinar’s value in 1989 positively influences the Hidden economy in Jordan, ceteris paribus.	(NS)

^{Notes: (+) = significantly positive; (-) = significantly negative; (NS) = insignificant.}

Table 6. The MIMIC model results

Variables	1981–2018	1982–2018	1983–2018	1980–2017	1980–2016	1980–2015
Causes
Budget deficit (DEF)	1.476*** (5.02)	1.254*** (2.95)	1.012*** (3.32)	1.235*** (3.15)	1.006*** (5.82)	1.264*** (4.32)
Total tax revenue (TERV)	2.957 (1.39)	2.136*** (3.05)	2.748** (1.99)	2.534*** (5.43)	2.152*** (3.53)	2.031*** (3.34)
Inflation rate (IN)	0.143** (2.31)	0.121** (2.45)	0.095** (1.91)	0.071*** (2.94)	0.043*** (2.85)	0.089*** (2.87)
Female participation (FP)	−1.132*** (−3.98)	−0.792*** (−4.02)	−0.892*** (−5.11)	−1.136*** (−4.04)	−0.854** (−2.55)	−0.846** (−2.62)
Unemployment rate (UNEMP)	0.253*** (3.56)	0.395** (2.43)	0.273*** (2.89)	0.325*** (3.01)	0.202 (1.78)	0.341** (2.14)
Interest rate on savings (I)	1.931 (1.75)	1.141 (1.68)	0.871** (3.38)	0.811 (1.18)	0.536 (1.11)	0.458 (1.18)
Jordanian dinar’s decline (DY)	0.447 (1.35)	0.654*** (3.41)	0.264 (1.45)	0.514 (1.08)	0.064 (1.14)	0.057 (0.865)
Indicators
Growth rate of real GDP (GRGDP)	−1.00	−1.00	−1.00	−1.00	−1.00	−1.00
Currency in circulation (GRCR)	0.033*** (6.84)	0.012*** (5.83)	0.024*** (7.54)	0.021*** (6.92)	0.077*** (5.83)	0.094*** (5.43)
Statistical Tests
RMSEA	0.011	0.030	0.026	0.028	0.064	0.032
Chi-square (P-value)	24.47 (0.0012)	21.10 (0.0845)	20.48 (0.0535)	24.78 (0.0041)	22.18 (0.0184)	19.45 (0.0651)
NFI	0.83	0.87	0.91	0.89	0.88	0.92
GFI	0.88	0.91	0.93	0.96	0.95	0.97
AGFI	0.92	0.96	0.95	0.94	0.95	0.93

^{Notes: t statistics are in parentheses. * Significant 90% level; ** significant at the 95% level and *** significant at the 99%.}

Table A1. Causes of the hidden economy

Causes	Description	Sources
Inflation rate (IN)	The percentage change in the consumer price index	Central Bank of Jordan’s monthly bulletins and the yearly statistical series and IMF.
Unemployment rate (UNEMP)	Represents the country’s unemployment rate	Jordanian Department of Statistics
Budget deficit after foreign aid (DEF)	Represents the percentage of a budget deficit of GDP.	Central Bank of Jordan’s monthly bulletins and the yearly statistical series.
Female labor force participation	Represents the percentage of the female labor force of total labor force.	World Bank
Total tax revenue (TREV)	Represents the percentage of total tax revenue divided by GDP	Central Bank of Jordan’s monthly bulletins and the yearly statistical series and World Bank.
Interest rate on savings (I)	Represents interest paid on savings deposits (to capture the opportunity cost of holding cash)	Central Bank of Jordan’s monthly bulletins and the yearly statistical series.
A dummy variable (DY)	Jordanian dinar in 1988 (DY = 1 for the years 1988–2018, and DY = 0 for the years before 1988).	-

Table A2. Indicators of the hidden economy

Indicators	Description	Sources
GRCR	Growth rate of the real currency in circulation can be calculated by nominal money in circulation divided by the consumer price index.	Central Bank of Jordan’s monthly bulletins and the yearly statistical series a Word Bank.
GRGDP	Growth rate of real GDP can be calculated by the growth rate of gross domestic products (GDP) of all goods and services in constant prices divided by Inflation.	Central Bank of Jordan’s monthly bulletins and the yearly statistical series and IMF.
GRCON	Growth rate of real private consumption can be calculated by nominal private consumption divided by the consumer price index.	Central Bank of Jordan’s monthly bulletins and the yearly statistical series and IMF.

Table A3. ADF test for the MIMIC approach variables

		ADF test	Unit Root Summary	DW-test value
	Level	1st difference
GRGDP	−6.126***	−4.886***	-	1.995
GRCON	−0.739	−3.854***	I(1)	1.910
GRCR	−1.146	−8.518***	I(1)	2.150
I	−0.844	−3.677***	I(1)	2.043
TREV	−2.632*	−5.048***	-	2.034
UNEMP	−1.868	−4.049***	I(1)	1.969
FP	−1.081	−6.958***	I(1)	1.949
INF	−3.855***	−4.287***	-	2.065
DEF	−4.708***	−9.075***	-	2.234

Reported above are the T-statistics for the Augmented Dicky-Fuller (ADF) test. Null hypothesis: variable has a unit root. The lag length was chosen using the Schwarz Information Criterion. *, **, *** indicate significance at the 10%, 5% and 1% respectively. Source: Authors’ calculations.

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