An ARDL model of unrecorded and recorded economies in Turkey

The goal of this paper is twofold: to estimate the unrecorded economy (UE) of Turkey over the period 1987-2007 using a revised version of the currency demand approach and to analyze the relationship between UE and recorded GDP (gross domestic product). In particular, we propose to measure UE by the autoregressive distributed lag (ARDL) approach to cointegration analysis. Toda-Yamamoto casuality tests are also conducted to identify the relationship between unrecorded and recorded GDP. This research provides fresh evidence on the size of the UE to the recorded GDP in Turkey which ranges from 10.65% to 18.91% over the estimation period. Moreover, empirical evidence concretely suggests that causality runs from the recorded GDP to the UE. However, there exists a mild reverse causality. Suggestions for economic policy and hints for further research are also offered