What is the relationship between Unofficial and Official Economy? An analysis in Latin American Countries.

This paper analyzes the relationship between unofficial economy (UE) and official GDP. Through the study of the UE within an institutional comprehensive empirical framework, a positive correlation is found between unofficial and official GDP. Empirical evidence on the procyclicality of UE supports the conclusion that the two sectors are rather complements than substitutes for Latin American countries. Then UE is considered as beneficial to sustain economic growth. Suggestions for economic policy and hints for further research are also offered.