The Effect of the Shadow Market on Agriculture and Rural Development

Agriculture and rural development are the topics of broad and current interest for researchers and policy makers. It is recognized as the main origin of economic stability and prosperity. Agriculture provides food, raw materials, employment opportunities for rural people, and an increase in output and productivity. However, the activity of many modern agricultural enterprises is safely hidden in the shadows. This thesis aims to assess the effect of the shadow agricultural market on agriculture and rural development using own constructed dataset spanning for 1995-2015 years. To conduct estimation, such approaches are employed: fixed effect panel regression and Heckman’s two-step estimation procedure. Controlling for different economic and political indicators, shadow agricultural market appeared to have negative effect on agriculture and rural development, measured by agricultural TFP and expenditures on agricultural public goods. This thesis contributes to the development of the topic and fills the gap in the estimation process.