This paper is the first attempt to directly explore the long-run nonlinear relationship between the
shadow economy and level of development. Using a dataset of 158 countries over the period from
1996 to 2015, our results reveal a robust U-shaped relationship between the shadow economy size
and GDP per capita. Our results imply that the shadow economy tends to increase when economic
development surpasses a given threshold or at least does not disappear. Our findings suggest that
special attention should be given to the country’s level of development when designing policies to
tackle issues related to the shadow economy.
Empirical tests of the New Keynesian Phillips Curve have provided results often inconsistent
with microeconomic evidence. To overcome the pitfalls of standard estimations on aggregate
data, a Full Information Partial Equilibrium approach is developed to exploit sectoral level
data. A model featuring sectoral NKPCs subject to a rich set of shocks is constructed.
Necessary and sufficient conditions on the structural parameters are provided to allow sectoral
idiosyncratic components to be linearly extracted. Estimation biases are corrected using the
model's restrictions on the partial equilibrium propagation of idiosyncratic shocks. An
application to the US, Japan and the UK rejects the purely forward looking, labor cost-based
The European recovery is strengthening and broadening appreciably. Real GDP growth is projected at 2.4 percent in 2017, up from 1.7 percent in 2016, before easing to 2.1 percent in 2018. These are large upward revisions—0.5 and 0.2 percentage point for 2017 and 2018, respectively—relative to the April World Economic Outlook. The European recovery is spilling over to the rest of the world, contributing significantly to global growth. In a few advanced and many emerging economies, unemployment rates have returned to precrisis levels. Most emerging market European economies are now seeing robust wage growth. In many parts of Europe, however, wage growth is sluggish despite falling unemployment.
Growth is strengthening and broadening across Europe, driven by buoyant domestic demand (Figure 1.1). Following a pickup in economic activity in the second half of 2016, the European economy accelerated further in the first half of 2017, with growth outcomes surprising on the upside in most countries.
The countries of Central, Eastern, and Southeastern Europe (CESEE) have made major progress in raising living standards over the past two and a half decades. This progress was supported by a radical transformation of their economies and institutions. Using case studies and empirical analysis, this chapter explores the role of internal and external factors, particularly accession to the European Union (EU), in supporting reforms to strengthen the effectiveness of the judiciary. The findings suggest that, beyond initial conditions, an enabling environment for judicial reforms was created by factors and policies that (1) improved the distribution of resources and opportunities, (2) upgraded rules and procedures to recruit and train civil servants, and (3) increased transparency and accountability. The European Union and the Council of Europe (CoE) acted as strong external anchors in catalyzing reforms. However, there were also some reversals of reforms, and the sustainability of reforms appears to depend mainly on domestic factors. These findings might offer insights in particular for countries aiming to join the European Union, but also for others seeking to improve the effectiveness of their judiciary.
Income convergence in the Western Balkans has stalled at low levels.1 Measured in purchasing-power-parity (PPP) terms, income levels in the region today are less than 30 percent what they are in the euro area (Figure 3.1). Equally noteworthy, the ratio has not changed since 2008. This is in sharp contrast to the experience of the New Member States of the European Union (EU), where relative incomes have continued to grow strongly since the global financial crisis and are now at nearly two-thirds those of the euro area. There are many reasons for this disappointing performance,2 including an unfinished transition, exemplified in some countries by a large swath of inefficient state-owned enterprises; shortcomings in the rule of law and the business environment; limited human capital, exacerbated in some countries by significant emigration of qualified human resources, or “brain drain”; and scant and poor-quality public infrastructure. While acknowledging these issues, this chapter focuses on another important plank for the region’s development: the health of its banking sectors. Implicit is the assumption that, even if reforms in the other areas bring about high-quality bankable projects, their potential, and with it overall economic growth, will not be fully realized if banks are not in a good position to fund them.