Finding refuge underground: effects of refugee inflows on the shadow economy

ABSTRACT

This paper analyzes the effect of refugee inflows on the shadow, or underground, economy of host nations using panel data for 120 countries over the 1991–2017 period. The results show that refugee inflows increase the size of the shadow economy, particularly in low- and middle-income countries.

KEYWORDS:

• Forced migration
• refugee inflows
• shadow economy
• informal economy

JEL CLASSIFICATION:

• F22
• E26
• O17

Acknowledgments

The author thanks James Saunoris and two anonymous referees for their valuable comments and suggestions.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ See also Williams and Nadin (2011) and Williams and Shahid (2016) for a discussion of the various views that drive entrepreneurs to the shadow economy.

² The variable refugee inflows is also scaled by host population and labour force, and the results are similar.

³ This paper also considered additional covariates, including tax burden from the Heritage Foundation, regulation freedom from the Fraser Institute, government effectiveness from the Worldwide Governance Indicators, political globalization from the KOF Globalization Index, and government spending from the World Bank. The coefficient on refugee inflows remained positive and significant.

⁴ We also winsorized the variables shadow economy and refugee inflows at various other percentiles, and the results are consistent with the baseline findings.

⁵ As can be seen, the ten selected nations include high-income and low-and-middle-income countries. The reader is thus advised to use caution while interpreting the results presented in Table 3 since these calculations are based on regression estimates from the full sample.