Financial development、technological progress and China's underground economy ——evidence from micro enterprises in China

Unlike the existing literature,we estimate the financial development and technological progress on China's underground economy from the perspective of market factors. Based on our theoretical framework,we employ two-step GMM to estimate China's underground economy. The major findings are: financial development and technological progress have a strong negative effect on China's underground economy; market-oriented and enterprise privatization process can amplify this effect. To effectively reduce the size of China's underground economy,the current credit market structure must be changed to eliminate the non-state-owned enterprises' credit discrimination. Meanwhile,state-owned enterprises should gradually withdraw from some competitive fields.