Corruption and the shadow economy at the regional level

The links between corruption and the shadow economy have mostly been studied empirically at the country level. This paper contributes to this literature by examining the relationship at the sub-national level. We also add value to the existing literature in that we employ data capturing the extent to which the shadow economy and corruption are viewed as problems by firms as opposed to the standard measures of corruption and the size of the shadow economy. Using World Bank Enterprise Survey data, we find that sub-national units in which more firms report that corruption is an obstacle to their operations also tend to have more firms that report that the practices of informal competitors are an obstacle and vice versa. Sub-Saharan Africa is different in that neither of these findings is evident in that sub-sample.