Investigating the impact of tourism market diversification on the shadow economy in OECD and non-OECD countries

The primary aim of this study is to examine the effects of tourism market diversification on the shadow economy. Method of Moments Quantile Regression (MMQREG) approach has been used in the analysis of 70 countries, including 27 OECD countries and 43 non-OECD countries. Using two different shadow economy indicators as dependent variables, the results reveal that tourism market diversification raises shadow economy activities in the total sample. In OECD countries, an increase in tourism market diversification leads to a decline in the size of the shadow economy, whereas in non-OECD countries, greater tourism market diversification contributes to a rise in shadow economy activities. The results also show that greater financial development reduces the size of the shadow economy, and an appreciation of the real effective exchange rate decreases the size of the informal sector in non-OECD countries.