Abstract: Curriculum Reform policy of China was introduced in 2004 with a view to ensure quality education.  New curriculum reform policy brought significant change in the setting of education in China and it resulted in either creating or abolishing job opportunities in the education sector along with a change in the local government’s educational expenditure. However, no previous studies were conducted to examine the issue. This paper addresses the gap by examining the impact of curriculum reform policy of China on the employment in education sector and local government’s educational expenditure. Difference in Differences (DID) with fixed effect is applied to estimate the causal impact of the curriculum Reform policy. The results indicate that Curriculum Reform has significant negative impact on employment in education sector and local government’s educational expenditure in China.

Abstract: This study conducts the first productivity analysis for cooperative banks in Sri Lanka using an input distance function with multiple outputs. Using data on 103 cooperative rural banks between 2016 and 2020, we estimate technical efficiency and total factor productivity (TFP). The average technical efficiency decreased from 99% to 85%. The total factor productivity decreased substantially during this period, by as much as 38%. The decomposition of total factor productivity growth indicates that the dominant factor contributing to this decline was a scale change. We believe that the loan relief program enacted during the COVID-19 crisis, as well as the increased competition, decreased the size of operations, thus contributing to this decline. Technological change was overall positive, but minute likely due to cooperative banks’ reluctance to adopt new technologies. Finally, efficiency change has been negative throughout the period, likely due to increased operating expenses and non-performing loans. As policy implications, our findings suggest a more market-sensitive government intervention, the adaptation of modern technology, and comprehensive human resource development.

Abstract: Farmer perspectives are relevant for understanding agricultural issues and formulating policies. In this study, we conducted a cross-sectional survey on 70 Filipino farmers (i.e., 35 organic and 35 biotech) to understand farmers’ perspectives regarding coexisting farming methods. Internal response variables were tested to verify the type of decision-making processes being undertaken by biotech and organic farmers. Our results showed that a non-linear decision-making process, similar to the Stimulus–Organism–Response Model, was present for both farmer groups. The study also found that biotech farmers were more influenced by internal factors (e.g., consumer resources) than organic farmers, who rely more on external influences (e.g., culture and social interactions), in connection to their coexistence perspective. The presence of “maverick executives” within the organic farmers gives traction to the notion that coexistence can help empower farmers in choosing what farming method is most suitable to their needs. Our data can also provide insights to policymakers in terms of surveying farmer perspectives to balance farmer needs, primarily in yield and income security, with the national agricultural agenda centered on environmental conservation. Thus, farmer perspectives should be considered alongside ongoing studies and debates on coexistence.

Abstract: Economically vulnerable households are likely to make inefficiently low investments in their children’s education and to send them to work at an early age. Global Estimates indicate that 152 million children — 64 million girls and 88 million boys — are in child labor globally in 2019, accounting for almost one in 10 of all children worldwide. This study hypothesizes that cash transfers to vulnerable households can reduces the child labor participation that arises as a response to household vulnerability along with their poverty alleviation. This study aims to examine the impact of cash transfers to vulnerable households on their child's participation in the labor market. Using household level micro data from Bangladesh Multiple Indicator Cluster Survey (MICS) 2019, Fuzzy Regression Discontinuity Design was implemented as identification strategy to estimate the effect of cash transfer on the child labor force participation in Bangladesh. The results indicate that the cash transfer significantly reduces the working hours of child labor in the labor market. The results are robust across the different sensitivity tests of the Regression Discontinuity Design. The results highlight the importance of a more effective social transfer policy to vulnerable households to achieve Sustainable Development Goals calls for an end to child labor in all its forms by 2025.

Abstract: To what extent do socioeconomic conditions in early life shape individuals’ noncognitive skills? Using exogenous variation in weather conditions across 46 non-OECD countries over time, this study examines the impact of weather shocks in childhood on adult locus of control. The results show that experiencing rainfall shortages before age five causes individuals to believe that they cannot control their life outcomes, although the impact diminishes by their early forties. The impact is larger for females, and this accounts for 10% of the gender difference in the adult locus of control. This study also demonstrates the negative impact on females’ political participation. Finally, the underlying mechanisms for this relationship are explored. The findings suggest that in developing countries, better access to infrastructure and insurance could develop individuals’ locus of control, although the literature discusses the role of child care and education programs.

Abstract: 

Responses of CO2 emission to energy consumption shock in emerging economies 

The transition from non-renewable energy to renewable energy in emerging economies is an urgent issue, as the increase in energy demand associated with their rapid economic growth is causing various environmental problems such as global warming. This study examines how an unanticipated rise in energy consumption alters CO2 emissions, controlling for the prevalence of renewable energy in emerging economies by applying the local projection method. The results show that a positive shock on energy consumption increases CO2 emissions in countries with a low prevalence of renewable energy, while the response of CO2 emissions is not statistically significant in countries with a high prevalence of renewable energy. Our results highlight the importance of promoting renewable energy use for emerging countries to receive “double dividend” by fulfilling energy demand associated with economic development and mitigating environmental degradation.

The environmental Kuznets curve hypothesis for sectoral CO2 emissions: Evidence from developed and developing Countries

Carbon dioxide (CO2) emissions entail a key component of greenhouse gases (GHGs) and are crucial for global warming and climate change issues. Although the environmental Kuznets curve (EKC) pattern of the emissions-income nexus has intrigued many researchers for a long time, few studies cover a wide range of economic sectors and a large number of countries, which calls for the re-investigation of sector-wise EKC arguments. Thereby, we investigate the long-run equilibrium relationship between CO2 emissions and per capita income in a panel of 86 developing and developed countries for the period from 1990 through 2015. Our findings show that the EKC holds for three sectors: the electricity and heat production sector, the commercial and public services sector, and the other energy industry own use sector with the turning points of approximately 21,000 USD, 3,000 USD, and 5,000 USD, respectively. Additionally, emissions decrease monotonically for the manufacturing industries and construction sector, the residential sector, and the agriculture, forestry, and fishing sector, whereas increase monotonically with the development of the transport sector. Policymakers should consider adopting sector-specific environmental policies based on each sector’s unique income-emission relationship, to mitigate CO2 emissions effectively, and attain sustainable economic growth.

Environmental innovation and environmental degradation in the manufacturing industries of advanced and emerging economies

Environmental innovation is expected to encourage the development of green technologies and reduce the pollution level. The linkage between environmental innovation and CO2 emissions may vary across different economic sectors, also depending on a country’s development status. Past environmental studies overlook the different innovation-emissions nexus, particularly in the manufacturing sector, which is a crucial sector for economic development. This study examines the long- and short-run relationships between environmental innovation and CO2 emissions in the manufacturing sector for 18 advanced and 16 emerging economies during 1990-2015 by applying the panel mean group autoregressive distributed lags (PMG-ARDL) model. Our findings reveal a long-run relationship of environmental innovation with CO2 emissions in the manufacturing sector for advanced countries, but an insignificant long-run innovation-emissions nexus for emerging countries. Given the argument that there is an urgent need for a reduction in CO2 emissions in emerging countries without restricting economic growth, policymakers in advanced countries should strengthen regional and international cooperation activities to transfer green technology to emerging economies through international carbon-mitigation programs, including the Clean Development Mechanism (CDM) under the Kyoto Protocol. 

Abstract: The financial market plays a pivotal role in modern society influencing all parts of human life. However financial market well known for its complexity. Machine Learning approach provide a new alternative and deeper insight information. Therefore, this study discusses: (a) Machine learning method to detect the financial market pattern change in the US stock market and some other advance countries; and, (b) Machine learning method to understand financial market pattern in Indonesia as well as investigate variables’ importance in its forecasting process.

Abstract: Effective tax collection is an essential issue in government finance, because taxes comprise a significant portion of a government's revenue. However, governments in developing countries face a significant challenge to mobilize tax revenue due to rampant evasion. The revenue losses resulting from tax evasion attract public attention, prompting governments to pursue effective taxation policies. We argue that the compliance rate among registered taxpayers can be tackled cost-effectively. Our study highlights the importance of delivering messages from revenue authorities to enhance taxpayers' compliance behavior. In addition, our study also provides new empirical evidence on the impact of psychological ties between citizens and the government on citizens' willingness to pay taxes.

Abstract: Females in the developing world make major life decisions, such as those regarding marriage and fertility, as early as their teenage years. This study shows that exposure to a liberalised abortion regime significantly affects such choices. The study uses data from low- and middle-income countries covering Africa, Asia, and Latin America and employs a novel approach that combines the regression kink design and difference-in-difference frameworks. The pooled data analysis reveals no strong relationship between longer exposure to extended legal access to abortion and teenage births or pregnancy termination. In contrast, it unveils a robust positive association with educational attainment and a less robust negative link with teenage sexual debut and marriage. These results indicate that females with extended abortion access expect greater returns on education and increase their educational attainment accordingly; at the same time, they delay sexual initiation, which reduces the sexually active population and thus obscures teenage fertility changes. The heterogeneity analysis demonstrates that the findings are broadly consistent across countries. On the other hand, it finds little support for heterogeneity in the birth impact, particularly its increase due to abortion expansion, which can theoretically arise when the reform is exorbitant.

Abstract: TBD

Abstract: In the past several decades, with the rapid growth of coal consumption, a huge amount of sulfur dioxide (SO2) was emitted in China. Therefore, Chinese government has implemented the “Two Control Zones” policies to control acid rain and sulfur dioxide emissions in certain areas. This article aims to use firm-level data to figure out the regulation's impact on the firms' behavior of the TCZ policy. The results show the effectiveness of the policy and following side-pollution.

Abstract: 

(1) The nexus between renewable energy certificate and electricity prices in India: Evidence from wavelet coherence approach: Numerous papers have evaluated India's renewable energy certificate (REC) market mechanism, but the relationship between the prices of REC and electricity has still remained unexplored. The objective of this paper is to investigate this issue in India over the period of April 2011 to June 2020. We employ a partial wavelet coherence (WC) approach to uncover the underlying bivariate dynamic relationship, in different time and scales, after eliminating the influences of other variables, such as industrial production index and coal price. The analysis provides several important results. First, REC prices mainly co-moved with electricity prices in the medium-run ranging from three to fifteen months scale. Second, in these co-movements, electricity prices mostly led REC price movements. Third, REC and electricity prices showed a positive relationship at the initial stage of the REC market establishment over the scales of three to nine months, but later reversed to a negative relationship over the scales of eleven to fifteen months. We propose two channels to explain the reversal of the direction of the association between REC and electricity prices.

(2) Responses of fossil fuel consumption to oil price shocks and the role of economic development and energy trade balance: Fossil fuels fulfill more than eighty percent of the world’s energy requirement, and countries’ structure of energy use is highly dependent on their development stage and energy trade balance. This paper examines how the responses of fossil fuel energy consumption depend on a country's states of development and energy trade balance. Using the local projection method by Jordà (2005), we first confirm that fossil fuel responds asymmetrically to a positive and a negative oil price shock. We then find that only developed countries with net energy imports experience such an asymmetry in responses of fossil fuel energy consumption to oil price shocks. For developing or net energy exporting countries, irrespective of the sign of shocks, there does not exist any significant responses of fossil fuel energy consumption to an oil price shock.

(3) Do remittances help households to ascend the energy ladder in developing countries? One-third of the global population does not have access to modern cooking technologies, and 759 million people do not have electricity access as of 2019. The United Nations aim to ensure universal access to affordable, reliable, and modern energy services by 2030 under the Sustainable Development Goal 7. This goal is attainable only when households of the developing countries ascend the energy ladder by transitioning from dirty and conventional energy sources, such as coal, wood, and animal waste, toward clean and modern energy sources, such as kerosene, gas, and electricity. Remittance inflow, being a stable source of income to households in developing countries, is likely to be associated with the energy transition in the residential sector. This paper examines how remittance inflow helps households’ transition from conventional fuels to modern fuels in 27 developing countries from 1995 to 2018. This study differs from existing literature mainly in two ways. First, we investigate the long-run linkage between remittance inflow and the share of modern energy in the residential energy consumption at the national level. Second, this study draws empirical evidence from a sample of a relatively large number of developing countries comprising both high and low remittance recipient countries. Our results indicate that personal remittance helps households in developing countries increase the share of modern fuels in their total energy portfolio in the long run. In particular, a one percent increase in the remittances (ratio to GDP) is associated with a 0.24 percent increase in the share of modern energy in the residential energy consumption in the long run.

Abstract: Although the poverty rate in Cambodia has gone down to approximately 15% in recent years, Cambodia is still among the lower third of the Human Development Index (HDI) and has the worst inequalities in south Asian region.  Therefore, the government decided to alleviate the poverty through different kinds of programs with targeted orientation towards the poor. Before 2006, the process of identifying poor households in Cambodia is not standardized. In 2006, the Ministry of Planning of Cambodia established a program called Identification of Poor Households (IDPoor Program) in order to fight against poverty. After assessment by the trained Village Representative Groups, the households are categorized as poor will be given the equity card by which the household can have access to free health care service.  This paper examines the impact of having the equity card on household education expenditure, health care seeking times, health expenditure and women’s health centre child delivery. The result shows that the equity card has significant impact on the household monthly health seeking times and the women’s tendency to deliver their children in health centre more instead of at home as they have free access to healthcare facilities. There is no significant impact on healthcare expenditure and total education expenditure.

Abstract: We consider an incomplete contracting model in which the decision process consists of advice, choice, and execution. Each party has an imperfectly informative private signal on the promising project and the execution of the project is costly. The revelation of the principal's signal through her project choice may discourage the agent's costly execution by denting his confidence that the project is promising. Rubber-stamping the agent's advice about the project choice allows the principal to avoid discouragement. However, because of the agent's learning motive, he may be intentionally silent to prompt the principal to reveal her private signal through the project choice. The agent's strategic silence may prevent informal delegation even when the principal has no incentive to overturn the agent's advice.

Abstract: Following the rapid growth of Indica rice imports from Cambodia and Myanmar, the European Union (EU) adopted safeguard measures to reinstate the common-customs tariff rate of 175 euros per ton from 2019, with a progressive liberalization over three years. To estimate the impact of safeguard duties, this paper uses a sample of milled rice imports in 28 EU importers at the monthly level during 2017-2020 and adopts a standard triple differences approach. The results show that safeguard duties have a significantly negative impact on import values and quantity of affected goods, and a significantly positive impact on import prices. Safeguard duties appear to induce trade redirection to other third markets, but produce little substitution effects for EU rice producers. 

Abstract: While talent management (TM) is a common organizational practice, little attention has been paid to employees who are not considered “talents,” or non-high potential employees (NHPEs). In addition, they are affected by workforce differentiation through TM practices, there are potential negative outcomes if talent-related information is not well communicated to them. Literatures also show that there is still a lack of evidence on the mechanisms underlying the process in which TM affects their employee outcomes. As such, this study implemented a scenario-based survey with post-test experimental design among 181 public-sector NHPEs to examine the effect of communication patterns in delivering information related to TM on NHPE outcomes (i.e., organizational commitment, job satisfaction, and the intention to leave). We also expand the scope of our research to examine how perceived organizational justice mediates the relationship between communication patterns in TM practice and NHPE outcomes, thereby clarifying the underlying mechanisms. A causal mediation analysis confirmed that communication patterns in delivering information related to TM to NHPEs especially presence of accurate procedure before an unfavorable result and face-to-face feedback after an unfavorable result, have a positive effect on organizational justice and subsequently on organizational commitment and job satisfaction. Perceived distributive justice and perceived procedural justice play a mediating role in these relationships. This study extends fairness and social exchange theory by furthering our understanding of how people in unfavorable situations shape their perceptions of fairness toward organizational behavior. The study also identifies communication patterns as a key resource in exchange partners that can be capitalized into NHPE energy reciprocity.

Abstract: How does exposure to wartime violence shape subsequent socioeconomic outcomes? Despite the growing scholarly interests in the legacies of war, the long-run effects of the herbicide spray in the Vietnam War — the most massive usage of chemical weapons and indiscriminate violence in human history — remain understudied. We investigate the legacies of chemical warfare by exploiting the variation derived from the spray flight-level archival records, originally georeferenced historical maps, and the historical fact that the US prohibited herbicide spraying beyond the Cambodia-Vietnam border. Using several identification strategies, including a fuzzy regression kink (RK) design leveraging the flight-level variation, we find two persistent patterns: The herbicide exposure during the 1961–1971 period is negatively associated with (1) population growth, as a proxy of urbanization, and, to a lesser extent, (2) nightlight luminosity growth, as a proxy of economic growth, in the present day. 

Abstract: We investigate a setting in which many citizens learn a hidden state individually on an online platform. The platform receives news reports about the state and imperfectly filters misinformation in the reports, triggering conflicts about the value of the state among the citizens. We show that a platform with an ethical concern to internalize the cost of these conflicts could perversely aggravate conflicts. We show that societal efforts to mitigate conflicts, such as investments in ethical algorithms, public awareness campaigns, and government policies, are effective if and only if their implementation is sufficiently aggressive.

Abstract: Tax incentives for investment have recently increased worldwide in response to economic disruptions caused by COVID-19. The effectiveness of such incentives has been evaluated conventionally by the effects on firms directly affected by the tax policies. However, indirect effects through the supply chains of the affected firms can be of first-order importance. This paper estimates the indirect effects of tax incentives for investment on firm performance through production networks, exploiting a quasi-experimental event of an investment stimulus and unique proprietary data of supply chains in Japan. After reconfirming the direct effects, I find comparable indirect effects.

Abstract: Using branch-manager linked data from the Cooperative Rural Banks (CRBs) of Sri Lanka, we investigate the source of branch performance differences. Despite the significant variation in the local conditions of branches, we found that managerial talent matters significantly. Our mixed effect estimations show that the manager effects explain 26% of the raw variation in the branch profit per worker and 28% of the raw variation in the branch-level non-performing loan ratio (NPLR). Unsurprisingly, branch effects explain even larger shares of the variations, 61% for the branch profit per worker, and 32% for NPLR. We did not find evidence, however, that branch managers are rewarded for their real contributions, measured by the estimated manager effects via salary increase. Rather, they are rewarded merely for the raw performance of their branches. However, we found evidence that managers are rewarded with improved branch assignments. A one standard deviation improvement in manager effects would increase the probability of being assigned to the top quartile branches by 16%.

Abstract: To slow down the growth in healthcare costs, policymakers have turned to supply-side cost containment incentives to influence health provider behaviour. However, not much is known about its effectiveness empirically. We examine the effect of financial incentives in capitation payment system on provider behaviour using difference-in-difference with fixed effects and event study analysis of administrative claims data over 48 months (2016 – 2019). We exploit an exogenous policy shock that changed the financial incentives faced by providers in the Ashanti region of Ghana when a pilot capitation policy with mandatory provider participation was terminated in July 2017. We found that providers respond to financial incentives in capitation: outpatient visits were lower by about 35%. Further heterogeneity analyses showed that clinics and health centres responded more aggressively than hospitals, especially private clinics (-52%). The evidence is consistent with demand inducement. However, we found no significant adverse effect of capitation on quality of care, suggesting that the observed reductions may be in unnecessary/low-value visits. The findings suggest that capitation may be an effective cost containment policy tool where overuse of medical services is a concern for policymakers, and that it is possible to achieve reduction in low-value visits without compromising the quality of care, especially at the lower levels of the healthcare system.

Abstract: This study examines how micro- and macro-prudential policies work and interact with each other over the credit cycles using a dynamic general equilibrium model of financial intermediaries. Micro-prudential policies restrict the excess risk-taking of individual institutions, while taking real interest rates (prices) as given. By contrast, macro-prudential policies control the aggregate credit supplied (equilibrium outcome) by internalizing prices or the general equilibrium effect. The proposed model indicates that: (i) micro-prudential policy alone cannot completely remove inefficient credit cycles; (ii) when macro-prudential policy is conducted jointly with the micro-prudential one, policymakers can improve banks' credit quality and remove inefficient credit cycles completely without sacrificing the total credit supply; and (iii) the contributions of micro-and macro-prudential policies to the improvement in social welfare are roughly comparable.

Abstract: Climate change-induced sea level rise (SLR) will affect a range of coastal assets and prompt difficult decisions about coastal land use across the world. Several recent studies find that current and projected SLR is associated with relatively lower property values. We contribute to this growing body of research with a case study of Oʻahu, Hawai‘i, which is famed for its beaches as well as valuable coastal real estate. We leverage a dataset that unpacks multiple types of SLR exposure and coastal parcel attributes. We apply property transaction data for the island of Oʻahu through 2019 to investigate the effect of current and expected SLR exposure on residential property prices. We find that exposed properties have already experienced declines in transaction prices, at 9% to 14%, mainly attributed to exposure to chronic inundation (as opposed to seasonal flooding).  The price declines are mainly for multi-dwelling homes as opposed to single family homes. The market response of residential properties to SLR has important implications for coastal management strategies, in particular the viability and timing of programs for retreat.

Abstract: In many parts of the world, lake drying is caused by water management failures, while the phenomenon is exacerbated by climate change. Lake Urmia in Northern Iran is drying up at such an alarming rate that it is considered to be a dying lake, which has dire consequences for the whole region. While salinization caused by a dying lake is well understood and known to influence the local and regional food production, other potential impacts by dying lakes are as yet unknown. The food production in the Urmia region is predominantly regional and relies on local water sources. To explore the current and projected impacts of the dying lake on food production, we investigated changes in the climatic conditions, land use, and land degradation for the period 1990–2020. We examined the environmental impacts of lake drought on food production using an integrated scenario-based Geoinformation framework. The results show that the lake drought has significantly affected and reduced food production over the past three decades. Based on a combination of cellular automaton and Markov modeling, we project the food production for the next 30 years and predict it will reduce further. The results of this study emphasize the critical environmental impacts of the Urmia Lake drought on food production in the region. We hope that the results will encourage authorities and environmental planners to counteract these issues and take steps to support food production. As our proposed integrated Geoinformation approach considers both the extensive impacts of global climate change and the factors associated with dying lakes, we consider it to be suitable to investigate the relationships between environmental degradation and scenario-based food production in other regions with dying lakes around the world.

Abstract: Identifying leading industries in developing countries in the long run is essential to formulate economic policy. This paper presents a simple way to identify these leading industries using a new decomposition technique modifying the traditional decomposition method, which uses the input–output tables of three different time periods of some South Asian Lower Income Developing Countries (LIDCs), including Bangladesh. Our modified technique could identify new accelerating industries when applied to study structural change in economy, which was not possible with traditional method. Our results showed Vietnam is the only country which has diversified manufacturing sectors as its leading sectors among these countries. Other countries’ top leading sectors are mainly service sectors with exception of few manufacturing ones. We only found Food sector as commonly growing manufacturing sector in all the countries except Pakistan. Construction sector is also found as commonly growing as these countries are having huge development work recently. Among other common accelerating sectors, we found Textile sector in Bangladesh, Cambodia & Vietnam and Electricity sector in Pakistan, Lao & Nepal. Detailed decomposition result shows except Vietnam which mainly depends on export growth, economic growth in other countries are mainly due to change in consumption.

Abstract: Economic theory suggests that leaders may play a key roles in enabling social movements to overcome collective action problems through a variety of distinct mechanisms. Empirical tests of these theories outside the lab are scarce due to both measurement and identification challenges. We conduct multiple field experiments to test theories of leadership in the context of Myanmar’s burgeoning labor union movement. We collaborate with a confederation of labor unions as it mobilizes garment workers in the run-up to a national minimum wage negotiation. We present three sets of results. First, we document that union leaders differ from union members and non-members along several traits that economists identify as relevant for political selection and that psychologists have associated with ability to influence collective outcomes, respectively. Second, we randomly embed leaders in group discussions on workers’ preferred and expected minimum wage levels. A leader’s presence in the group improves group engagement and increases workers’ consensus around the unions’ preferred minimum wage levels. Third, we conduct a mobilization experiment in which workers are invited to participate in an unannounced activity that features strategic complementarity in turnout. Leaders influence participation through both coordination and social pressure mechanisms rather than by simply motivating workers.

Abstract: Farmer perspectives are relevant for understanding agricultural issues and formulating policies. In this study, we conducted a cross-sectional survey on 70 Filipino farmers (i.e., 35 organic and 35 biotech) to understand farmers’ perspectives regarding coexisting farming methods. Internal response variables were tested to verify the type of decision-making processes being undertaken by biotech and organic farmers. Our results showed that a non-linear decision-making process, similar to the Stimulus–Organism–Response Model, was present for both farmer groups. The study also found that biotech farmers were more influenced by internal factors (e.g., consumer resources) than organic farmers, who rely more on external influences (e.g., culture and social interactions), in connection to their coexistence perspective. The presence of “maverick executives” within the organic farmers gives traction to the notion that coexistence can help empower farmers in choosing what farming method is most suitable to their needs. Our data can also provide insights to policymakers in terms of surveying farmer perspectives to balance farmer needs, primarily in yield and income security, with the national agricultural agenda centered on environmental conservation. Thus, farmer perspectives should be considered alongside ongoing studies and debates on coexistence.

Abstract: We examine the relationship between financial sector development and the shadow economy in Indonesia from 1980 to 2020. We estimate the size of Indonesia's shadow economy using the “Modified Cash to Deposits Ratio” approach. We then construct a long-term model using the size of Indonesia's shadow economy as the dependent variable. We set financial sector development as the main independent variable in our model. We use per capita real gross domestic product, the misery index, and foreign direct investment as control variables in our model. We find that financial sector development and the size of Indonesia's shadow economy have a nonlinear relationship that shows an inverted U-shape curve. The size of the shadow economy expands at the early stages of financial sector development to a turning point and decreases when financial sector development increases further. We also find that foreign direct investment curtails Indonesia's shadow economy. Additionally, increases in income expand Indonesia's shadow economy while misery index shows ambiguous results. We suggest the Indonesian authorities widen access for micro, small, and medium firms to the credit markets and enhance existing programs to reduce poverty and narrow the income gap in the country. These efforts help to narrow the size of Indonesia's shadow economy.