Measuring the Size of the Hidden Economy in Trinidad & Tobago, 1973–1999

Parution :

International Economic Journal, Vol. 20, No. 3, 321–341, September 2006

Auteur(s) :

Alain Maurin, Patrick Kent Watson et Sandra Sookram

In this paper, an attempt is made to measure the hidden economy of Trinidad & Tobago over the period 1973–1999, within the Structural Cointegrating VAR (SCVAR) framework. Using a Tanzi-type currency demand approach as a starting point, a multiple equation SCVAR model is estimated that contains two long-run relationships linking the demand for currency with other variables. The model is evaluated on the basis of its persistence profiles, its impulse responses and other statistical criteria. It is solved using a Gauss–Siedel algorithm and is used to establish that the size of the hidden economy rose from a low of about 14% of measured GDP in the early 1970s to a high of 36% in 1981, and is currently about 20% of measured GDP. Hidden economic activity is also found to be highly positively correlated with activity in the regular economy.