SHADOW ECONOMY AND ECONOMIC GROWTH IN EGYPT:DOES CORRUPTION MATTER?

Abstract

Tis study aims to analyze the impact of the shadow economy (SE) on economic growth (EG) in Egypt, and how corruption affects the nexus between the shadow economic and EG, using discrete threshold regression method over the period (1991- 2023). The results show that the nexus between the SE and EG in Egypt is neither linear nor constant but is clearly shaped by the level of corruption prevailing in the economic environment. The threshold value of the Corruption Perceptions Index (CPI) is 32points and indicates the presence of two distinct regimes that reflect different realities of the Egyptian economy.When corruption is high (i.e., CPI below 32), the SE has a Sig. negative impact on EG.While when CPI equal to or greater than 32 points, the impact of the SE on EG becomes weak and statistically inSig..Reducing corruption and improving governance quality not only directly enhance growth prospects but also serve as a key factor in mitigating the adverse effects of the SE, thereby fostering a healthier and more orderly economic environment. Hence, policies aimed at combating corruption and increasing transparency could be foundational pillars for achieving sustainable and inclusive EG in Egypt.

Tis study aims to analyze the impact of the shadow economy (SE) on economic growth (EG) in Egypt, and how corruption affects the nexus between the shadow economic and EG, using discrete threshold regression method over the period (1991- 2023). The results show that the nexus between the SE and EG in Egypt is neither linear nor constant but is clearly shaped by the level of corruption prevailing in the economic environment. The threshold value of the Corruption Perceptions Index (CPI) is 32points and indicates the presence of two distinct regimes that reflect different realities of the Egyptian economy.When corruption is high (i.e., CPI below 32), the SE has a Sig. negative impact on EG.While when CPI equal to or greater than 32 points, the impact of the SE on EG becomes weak and statistically inSig..Reducing corruption and improving governance quality not only directly enhance growth prospects but also serve as a key factor in mitigating the adverse effects of the SE, thereby fostering a healthier and more orderly economic environment. Hence, policies aimed at combating corruption and increasing transparency could be foundational pillars for achieving sustainable and inclusive EG in Egypt.