Globalization, Economic Freedom, and the Shadow Economy in ASEAN Countries: Insights from Bayesian Modeling

The shadow economy poses significant challenges for governments and policymakers, as it can undermine tax revenues, distort economic statistics, and perpetuate income inequality. Using Bayesian linear regression, the paper highlights the intricate relationships between social globalization, political globalization, economic freedom, and the shadow economy in ASEAN countries between 2002 and 2018. Upon making a distinction between the de jure and de facto dimensions of social and political globalization, our findings demonstrate the effectiveness of both de facto and de jure globalization in mitigating the proliferation of the shadow economy. Moreover, increased levels of economic freedom tend to diminish the scale of the shadow economy by promoting participation in the formal economy. Empirical results provide evidence for sound policymaking in controlling informal activities and strengthen the confidence of governments in promoting globalization and economic freedom that maintain sustainable growth. Understanding these interconnections is crucial for policymakers to develop effective strategies to promote economic growth, reduce the shadow economy, and foster sustainable and inclusive development.