The Effect of Governance on Growth of Shadow Economy in West Africa

Engagement in shadow economy activities doubles as a survival strategy against distortional government interventions resulting in unfavourable socioeconomic conditions and as an impediment to growth and development in developing economies. This study provides scientific evidence of the aspects of governance which minimize the size of the shadow economies of 15 West African countries from 1996 to 2019 using panel autoregressive distributed lag (pooled mean group estimator). Shadow economy (% of GDP) was used as the dependent variable while control of corruption; government effectiveness; voice and accountability; regulatory quality, rule of law and political stability were the used as measures of governance. The result revealed significant long run effect of all the measures of governance (except government effectiveness) on the size of shadow economy in West Africa. However, only control of corruption and rule of law were found to have significant negative effect on the size of shadow economy in West Africa.