Any Link between Unofficial Economy and Official Economy? An Empirical Evidence from the ASEAN

This purpose of this study is to examine a possible link between unofficial economy and official economy for the ASEAN from 1996 to 2013. The unofficial economy is technically unobservable. As such, the MIMIC approach, which will estimate the unobservable variable using different observable variables, is utilized in this study. The findings from this study indicate that when the official economy is proxied by the GDP or the GDP per capita, the unofficial economy negatively contributes to the official economy. The effect from the unofficial economy to the official economy is more significant to the GDP than to the GDP per capita. We argue that it may be the time to move away from the conventional approach adopted by the governments in the ASEAN in controlling the unofficial economy in the forms of punishment and education. A more appropriate approach to control a growth of the unofficial economy is to adopt a more comprehensive and systematic review of tax and social security contributions burdens; regulations and others which are well evidenced and documented in the literature of the shadow economy.