The Relationship between the Shadow Economy and the Elements of Competitiveness in Iran Using the Markov Switching-VAR

Objective: The economy of developing countries can be recognized by examining the two parts of the formal economy and the informal (shadow) economy. The official sector of the economy can be easily identified in the light of sources, reports and data contained in statistics and censuses, as well as by studying its structure, but the complex and invisible network of the shadow economy must be identified and evaluated with research studies and the role of quantitative and qualitative found this phenomenon in the country's economy. The purpose of this research is the analysis of the relationship between the shadow economy and the elements of competitiveness in Iran.
Method: The current research is applied in terms of purpose, descriptive-analytical in terms of inference method, and post-event in terms of the overall design of the research.
Results: The results showed that there is a significant relationship between the volume of the shadow economy and the shock on the input-oriented and efficiency-oriented elements of competitiveness in regime one (recession period) and the efficiency-oriented and creativity-oriented elements of competitiveness in regime two (boom period). The significance of input-oriented elements in regime two (boom period) and efficiency-oriented elements in regime one (recession period) was not confirmed.
Conclusion: Considering the impact of the size of the shadow economy and the shock on the input-oriented, efficiency-oriented and creativity-oriented elements of competitiveness, in different eras, it is suggested to provide economic platforms, so that we can witness the prosperity of economic indicators in our country. The shadow economy absorbs vital resources from the formal economy and partially prevents the implementation of policies that are necessary for the public interest. Also, the size of the shadow economy of the countries is different and even in some countries it exceeds a quarter of the gross domestic product (GDP). Although some shadow economies may have beneficial effects for some citizens or even the official economy of a country, in general, the shadow economy damages the country's competitiveness; Because it reduces the confidence of foreign investors in that country and, as a result, the possibility of their cooperation. On the other hand, competitiveness can provide incentives to bring underground operations to the surface and thus combat the undeclared economy. Using appropriate econometric methods, this research found evidence that the more competitive a country is, according to the global competitiveness index, its shadow economy becomes smaller (as a percentage of GDP). More precisely, as it was predicted, there is a negative relationship between the shadow economy and global competitiveness, and these results can help the relevant policy makers to curb the shadow economy with appropriate guidance towards increasing competitiveness. The country should help. A country that is interested in ensuring that its shadow economy will not expand; It should improve its competitiveness. Competition is a multidimensional and complex concept, especially when it refers to the national economy. Various indices of competitiveness describe its size and also its dimensions with regard to commercial activity, infrastructure and institutional environments and macroeconomics. At the same time, the competitiveness of a country primarily depends on its economic development, which in turn is affected by several factors. Some of these factors, such as investment, favorable business conditions, legal environment, etc., promote economic development, while others, such as low labor productivity, insufficient qualification of employees, etc., cannot meet the requirements of the labor market. They slow down the speed of economic development. Another thing that was confirmed in this research is the existence of a long-term relationship between the ease of doing business and the size of its shadow economy. In this regard, there is evidence that a country may be able to fight the shadow economy by increasing the ease of doing business. In fact, the shadow economy of a country is the result of the interaction between socio-economic development and its long-term psychological and cultural factors. Some of these factors can be considered and recognized as influential factors only with regard to the shadow economy and competition, but they cannot be significantly affected, at least in the short term. The issues can be considered in terms of the problem of people's mentality. A practical way to deal with the problem of the shadow economy, that is, to reduce the size of this phenomenon, is to promote socio-economic development and ease of doing business. When an economy is growing, ease of doing business also increases a country's competitiveness and most importantly, it helps to form a positive public attitude towards self-efficacy. By increasing business dynamism, developing skills, promoting the adoption of information and communication technology (ICT), increasing market size and infrastructure can be achieved. In addition, restrictive laws and higher living standards may lead to a reduction in the shadow economy. Higher levels of GDP also potentially provide a stronger financial system through macroeconomic stability and can provide more assistance in this area in addition to the guidelines that are formulated to curb unemployment. , because people can do transactions through the formal economy instead of the informal economy. In this regard, increasing exports as a percentage of GDP seems to be a useful tool to reduce the shadow economy. This is while reducing the consequences of the shadow economy through the ease of doing business and increasing GDP per capita and exports (as a percentage of GDP) is definitely a difficult task for the respective countries. However, achieving higher levels of (perceived) competitiveness is not inconceivable. According to the findings of the research, it can be generally stated that competitiveness is the ability of a country to maintain its relative advantages in order to support the economic growth and prosperity of its citizens, and the ease of doing business with the shadow economy are related.