Luận án: Kinh tế ngầm, FDI, chất lượng thể chế và bất bình đẳng thu nhập tại châu Á

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY HUYNH CONG MINH SHADOW ECONOMY IN THE RELATIONSHIP WITH FDI, INSTITUTIONAL QUALITY, AND INCOME INEQUALITY: EMPIRICAL EVIDENCE FROM ASIAN COUNTRIES PhD THESIS Ho Chi Minh City – 2018 MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY HUYNH CONG MINH SHADOW ECONOMY IN THE RELATIONSHIP WITH FDI, INSTITUTIONAL QUALITY, AND INCOME INEQUALITY: EMPIRICAL EVIDENCE FROM ASIAN COUNTRIES Major: Development Economics Code: 9310105 PhD THESIS Advisors: 1. Nguyen Hoang Bao 2. Nguyen Vu Hong Thai Ho Chi Minh City – 2018 i This thesis submitted to the School of Economics, University of Economics Ho Chi Minh City, in partial fulfillment of the requirements for the degree of Doctor of Philosophy in development economics. ii DECLARATION I hereby declare that this thesis is my own research.

Data and results are reliable, clearly originated, and have never been published in any other study. The author iii ACKNOWLEDGEMENTS First of all, I would like to express my great gratitude to Dr. Nguyen Hoang Bao and Dr. Nguyen Vu Hong Thai for their invaluable supervision and inspirations.

Thank you so much for keeping me on track throughout the research process, giving wise comments, advices and encouragement during such a long academic journey. Then I am honestly grateful to Dr. Pham Khanh Nam, Dr. Truong Dang Thuy, Dr.

Le Van Chon, Dr. Vo Tat Thang, Dr. Vo Hong Duc, Associate Pro. Nguyen Huu Dung, Dr.

Nguyen Luu Bao Doan, Dr. Pham Thi Thu Tra, Dr. Pham Thi Bich Ngoc, Associate Pro. Vuong Duc Hoang Quan and the two independent Reviewers for their valuable comments and encouragements so that I can improve the quality of my thesis.

I cannot forget showing my special thanks to lecturers at school of economics as well as those at University of Economics HCMC such as Professor Dr. Nguyen Trong Hoai, Dr. Pham Khanh Nam, Dr. Truong Dang Thuy, Associate Pro.Nguyen Manh Hung, Dr.

Tran Thi Tuan Anh, Associate Pro. Tran Tien Khai… for their academic and practical instructions during my time of study and research at the university. Last but not least, I am deeply grateful to my beloved family, including my deceased father, my 83-year-old mother as well as my sisters and brothers who always support and encourage me in time for completing the thesis. iv TABLE OF CONTENTS Declaration Acknowledgements Table of contents List of Abbreviations List of Tables List of Figures Pages Chapter 1: Introduction.

Research context and gaps. Research subjects and scope. Research methodology and data …………………………………. 18 Chapter 2: Literature review and hypotheses.

Theories on shadow economy. Schools of thought. Empirical studies on shadow economy. Methods to estimate the size of the shadow economy.

The impacts of shadow economy (effects). Shadow economy, FDI and Institutional quality. FDI and institutional quality. Theories on FDI (Definition, Theories, Determinants).

Theories of institutional quality (Definition, Theories, Determinants) 47 2. The relationship between institutional quality and FDI. Institutional quality and shadow economy .1 The effect of institutional quality on shadow economy .2 The effect of shadow economy on institutional quality. Shadow economy and FDI .1 The effects of FDI and FDI-institutional quality interaction on shadow economy .2 The effects of shadow economy on FDI.

Shadow economy and income inequality. The impact of shadow economy on income inequality. 67 Chapter 3: Methodology, model specifications, and data. Empirical models and data.

The sample selection of 19 Asian countries and their backgrounds on research problems. 93 vi Chapter 4: Shadow economy, FDI and Institutional quality: empirical evidence from Asian countries. Data descriptive statistics. Unit-root test.

Estimation results and discussions. 102 Chapter 5: The impacts of shadow economy on income inequality in developing Asia. Data descriptive statistics. Empirical results and discussions.

119 Chapter 6: Conclusions and policy implications. Limitations and further research implications. 129 List of publications. 158 vii LIST OF ABBREVIATIONS 2SLS: Two-stage Least Squares 3SLS: Three-stage Least Squares ARDL: Autoregressive-distributed lag model AR1: First-order Autocorrelation AR2: Second-order Autocorrelation ECM: Error correction model EFR: Economic Freedom Report FDI: Foreign direct investment FE: Fixed Effects FH: The Freedom House GCI: Global Competitiveness Index GDP: Gross Domestic Products GLS: Generalized Least Squares GNI: Gross National Income MENA: Middle East and North Africa MIMIC: Multiple Indicators Multiple Causes MNCs: Multinational Corporations HDR: Human Development Report HF: The Heritage Foundation ICRG: The International Country Risk Guide IEF: Index of Economic Freedom viii ILO: International Labor Organization IMF: International Monetary Fund IQ: Institutional quality JGLS: Joint Generalized Least Squares OLI: Ownership, Location, and Internalization OLS: Ordinary Least Squares POLS: Pooled Ordinary Least Squares PRS: Political Risk Services Group RE: Random Effects SEM: Simultaneous equation model SGMM: Two Steps System Generalized Method of Moments SURE: Seemingly Unrelated Regression UNESCO: United Nations Educational Scientific and Cultural Organization UNCTAD: United Nations Conference on Trade and Development UNDP: United Nations Development Programme WB: World Bank WDI: World Development Indicators WEF: World Economic Forum WGIs: Worldwide Governance Indicators ix LIST OF TABLES Table 2.

Labor market classification. Structure of informal work typology. Unit root tests for all variables. The estimation results of the SEM by 3SLS and Two Steps System GMM.

The effect of FDI on shadow economy. Definition and summary statistics. Final estimation results for the impact of shadow economy on income inequality by FE and RE. Estimation results for the impact of shadow economy on income inequality by 2 Steps SGMM.

121 x LIST OF FIGURES Figure 1. Institutional quality by 5 components in Asian countries on average from 2002-2015. The size of shadow economy as a share of official GDP and FDI as the percentage of GDP in Asian countries on average from 1999-2015. Recent trends of income inequality in Asian developing countries.

The place of institutions in the FDI determinants pattern. The theoretical framework for the link between shadow economy and income inequality. The analytical framework for the relationship among FDI, institutional quality, shadow economy and income inequality. The shadow economy and income inequality in Asian countries (1990-2015) ……………………………………………………………………………….

115 1 CHAPTER 1 INTRODUCTION Chapter Outline 1. Research context and gap 1. Research subjects and scope 1. Research methodology and data 1.1 Research context and gaps 1.1 Practical background For recent decades, shadow economy, investment from abroad, institutional quality and income inequality have attracted a great deal of attention in development economics because all of them relate to economic growth.

Both of foreign direct investment (FDI) and institutional quality (IQ) are considered important determinants of economic growth and development (Borensztein, Gregorio, & Lee, 1998; Nair- Reichert & Weinhold, 2001; Rodrik, Subramanian, & Trebbi, 2004; Acemoglu, 2 Johnson, & Robinson, 2005; Hansen & Rand, 2006; Varsakelis, 2006; and Kandil, 2009). While the official economy is closely related to the shadow economy (Schneider & Bajada, 2003; Vo & Pham, 2014). Moreover, economic growth is associated with income inequality (Kuznets, 1955; Barro, 2000). Especially, these variables and their relationships become worth studying in the context of Asia for its rising thorny features, such as high flow of FDI but low institutional quality, large shadow economy and rising income inequality.

First, global foreign direct investment has significantly grown since the 1970s, reached $1.76 trillion in 2015, fell 13% in 2016 ($1.52 trillion) and recovered in 2017; especially, developing Asia is now the largest recipient and accounts for almost one- third of total FDI inflows (UNCTAD, 2017). It is seen as the result of Asian countries in effort to attract FDI for economic development by adopting an open door policy, governance changes & institutional innovation (Haggard, 2004; Lee, 2002). However, the positive impact of FDI on economic growth depends on the institutional quality in the host countries (Brahim & Rachdi, 2014; Jude & Levieuge, 2017). It is also Asia‘s specific concern, especially when there are many countries might be stuck in middle income trap in the region and deficient institutional quality is one of the main causes (Dollar, 2015).1 describes the institutional quality by 5 components (including Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, and Rule of Law) in 19 Asian countries1 on average from 2002-2015.

The scale of measurement ranks from -2. In general, the institutional quality in Asian countries is low. The improvement has been seen but it is a slow progress. FDI has flowed into Asian countries in great amounts, but institutional quality is still 1 Including Bangladesh, Bhutan, Cambodia, China, India, Indonesia, Kazakhstan, Kyrgyzstan, Laos, Malaysia, Maldives, Mongolia, Myanmar, Nepal, Pakistan, Philippines, Sri Lanka, Thailand, and Vietnam.

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