where U is an indicator of irregular activities for individual i in region
r and sector s, X a set of socioeconomic indicators, FD the index of
financial development, JUD a measure of judicial inefficiency
(duration of trials, described in Section 6), Z a set of regional indicators,
μs sector fixed effects, and ε an error term. Proposition (1)
suggests α1 b0, and proposition (2) α2>0 (because longer length of
trails is associated with less judicial efficiency and an increase of
underground activities). In the empirical section we also report
separate estimates of Eq. (13) by sector to verify the implication of
proposition (3) that α1 and α2 should be larger in more mature
sectors