Urbanization and the Shadow Economy of Asian Tiger Cub Economies

Abstract

This paper investigates the impact of urbanization on the shadow economy in a group of Asian Tiger Cub countries such as Indonesia, Malaysia, the Philippines, Thailand, and Vietnam over the period 2002–2017. Using Bayesian regression, our results provide strong evidence supporting an inverted U-shaped relationship between the level of urbanization and the shadow economy. From a policy perspective, our results suggest that countries that are not yet experiencing a threshold level of urbanization need to quickly accelerate this process to have a smaller shadow economy.