The role of the shadow economy in economic growth

((Iraq is a case study))

A THESIS SUBMITTED BY

Yasser Ali Muhammad Al-Rajhi

To The Council of Management and Economic College

 University of Karbala

As Partial Fulfillment of the Requirements For The

Degree of Master of Science in Economics

Supervisor By

Assistant Prof. DrSalam K. Shani Alfatlawi

Abstract:-

      In view of what the Iraqi economy raised during the period (1995-2019), of international economic sanctions and political, economic and social transformations and the accompanying tremendous development in various fields, openness across borders and the transition to market economies, and the spread of financial and administrative corruption and the profits achieved by the beneficiaries, was the emergence and growth of The shadow economy represented by its illegal activities is a way to legitimize these funds, and this has caused severe difficulties for economic and security policy makers as it undermines the reliability of official statistics and this is what constitutes an obstacle to achieving economic growth.

The research stems from the hypothesis that, is economic growth in Iraq negatively and positively affected by changes that occur in the activities of the illegal shadow economy (money laundering, tax evasion, abnormal demand for money, corruption) and what is the percentage of these effects in the short and long term in the country.

To achieve the objectives of the research and to test its hypothesis, the research relied on a mixture between the use of the analytical method, which is based on the inductive and deductive method within the framework of economic theories and analysis of data development and evaluation of economic phenomena by extrapolating the economic reality during the research period, and the quantitative approach based on econometrics using ( Autoregressive Distributed Deceleration (ARDL) model to measure and analyze the role of the shadow economy in economic growth in Iraq for the period (1995-2019), which is based on induction testing, limits testing, diagnostic tests, and the most important conclusions reached by the researcher for changes in interest rates, which play an important role in influencing investment and decisions economy in the country, The high demand for abnormal money to meet the requirements of the shadow economy, which is inflexible towards interest rate changes, and thus monetary policy has no effect on liquid money in circulation, and accordingly it is affected by workers in the shadow economy, which will be reflected in raising the interest rate to achieve profits.

Keywords, shadow economy, abnormal demand for money, money laundering, economic growth.