The purpose of this paper is to empirically investigate the determinants and the impact of financial development on shadow economy in OIC countries and then compared with non-OIC countries. The study applies advanced panel GMM technique. The study finds that macro-variables (unemployment, economic growth, money supply and foreign trade) and institutional variables reduce shadow economy both in OIC and non-OIC countries. The study also explores that financial development mitigates shadow economy; however, its impact is significantly less in case of OIC economies compared to the non-OIC countries. Since the focus of this study is OIC countries vs non-OIC countries, the research only includes discussion about shadow economy in 42 OIC member states and 99 non-OIC economies. The decision to restrict the study to 42 OIC economies and 99 non-OIC nations is due to the availability of data. The study suggests that free market and good business environment in the formal economy are the keys to have less shadow economy. Good institutional setup and ease in regulations can attract firms and businesses from informal sector to the official economy, while political instability is one of the main factors for having large size of shadow economy. The OIC member countries should implement policies which improve accessibility to finance of every citizen of the country.

There are considerable studies regarding the contribution of international migrants' remittances to economic growth while there is a lack of studies which investigate the effect of remittances on shadow economy. The authors explore empirically the effect of remittances and its interaction effect with tax on shadow economy by using panel data covering the period 2004-2015 and applying the GMM method for 141 countries. Their empirical model, in which a remittance-recipient government, operating in tax environment of some regimes (imposition of different levels and kinds of taxes), predicts a negative effect of remittances on shadow economy, is mitigated by a higher tax regime. In other words, the paper argues that a well-established negative correlation between remittances and shadow economy has been weakened by tax rule. The study contributes to the current literature on public policy that gives importance to know the causes of shadow economy and boost remittances effect. The authors' baseline results are robust to various computations of macroeconomics variables, institutions variables and freedom variables.

Although literature on shadow economy has been growing, the examination is scarce in the case of developing countries, especially the Organization of Islamic Cooperation (OIC) economies. In this study, we develop various testable hypotheses related to shadow economy. We investigate the determinants of shadow economy across a large sample of 141 countries and examine whether it varies across OIC (42) and non-OIC (99) countries. The average size of the shadow economy in OIC countries is 34.36% of gross domestic product (GDP) while it is 30.57% of GDP in non-OlC economies. The approach of exploring various definitions, historical development, types, Islamic viewpoint and the determining factors behind people's preference to join shadow economy is adopted in order to provide a deeper understanding of shadow economy. As far as our first objective Is concerned, we explored the determinants of shadow economy in OIC and non-OIC countries (1995-2015). Our results show that economic growth and institutional variables have negative association with shadow economy in both types of countries whereas government expenditure has a positive effect on shadow economy in both groups ...