Growth convergence in Southeast Asia and underground economy in Indonesia

This dissertation deals with the growth convergence in Southeast Asia that focuses on the five ASEAN countries and explores the possibility of measuring the underground economy in Indonesia.;Through the similarity in the underlying distributions, the convergence conditions of the growth rate of real GDP per capita are examined for the five members of ASEAN (the Association of Southeast Asian Nations): Indonesia, Malaysia, the Philippines, Singapore, and Thailand. It is observed that convergence exists for all subsets of Indonesia, Malaysia, Singapore, and Thailand. The Philippines stands alone, divergent from the others. The convergent groups at high growth rates within ASEAN members may yield persistent differences in income level. In general, if income levels among countries are different, convergence in growth rates implies that income levels will be higher over time and catching up is difficult.;The sizes of underground economy in Indonesia are estimated using currency demand and MIMIC models. It is found that the size is about a quarter of GDP and observed that during the process of transitions, whether transition in tax law, economy, or politics, the size of underground economy changes significantly. In normal time, the sizes of the underground economy tend to be lower than its average. When the situation is not stable, the sizes of the underground economy adjust to some predicted or unpredicted shocks. During the changes of economic and political systems in the end of 1990's, the major overhaul of Indonesian's tax law in 1986, and during the small recessions in around 1983 and 1993, the sizes of the underground economic activities were far above the average.;The minimum size of the household underground economy in Indonesia is found to be small in term of percentages to household expenditure during the period of 1984–1999. This indicates that most of the underground economy in Indonesia is not in household level. However, the number of households that involve in the underground economy is about one third of total households in Indonesia. It implies that many households will do underground activities if they have chances. Further research is needed to examine the component of the underground economy in Indonesia.