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The global shadow economy generates trillions in revenue each year, driven by criminal activity and other unreported transactions. In low income countries, shadow activity makes up a larger slice of GDP, standing at an estimated 42.4% share; the underground economy is valued at more than half of GDP in Sierra Leone, Niger, and Nepal. In comparison, it drops to 5.9% of GDP in rich countries, with the UAE seeing the smallest share overall.
The shadow economy includes unreported or nun-taxed activity, making it difficult for authorities to monitor: it includes illegal enterprises, drug trafficking, street vendors and/or cash transactions made off the books; hence, various types of “dark economies” are included, e.g. the illegal, unreported, unrecorded and all kind of “informal economies”.
While measuring the informal economy is hard to quantify, it has shrunk from 17.7% of world GDP in 2000 to 11.8% in 2023. From illicit trade to informal business transactions, the global shadow economy makes up a staggering 11.3% of GDP presently. In contrast, the US underground economy comprises just 5% of GDP, yet its sheer size (valued at $1.4 trillion) makes it one of the world’s largest.
Background
The shadow economy or “black economy” (SE) refers to all work activity and business transactions that occur “below the radar”, i.e. the economic activity that is undeclared, hidden and for which taxes are not paid. Also known as the informal sector, the black economy, the underground economy, or the gray economy, the SE includes criminal activities such as drug dealing and smuggling, as well as legal jobs, such as gardening, working in construction, or selling products to car drivers at traffic lights.
This part of the economy also includes situations where individuals are forced to work as slaves with no pay, or where work is carried out in exchange for things other than money.
When economists calculate a country’s GDP, they do not include what goes on in the shadow economy; this means that every country across the world is probably considerably wealthier than official statistics suggest.
Among global economic shifts, the SE adapts rapidly, often serving as a barometer for the efficiency of a nation’s economic policies and the adaptability of its workforce.
Source and citations from: https://marketbusinessnews.com/financial-glossary/shadow-economy-definition-meaning/
Generally, the researcher are operated with quite old data, see e.g. The Shadow Economy. An international Survey (2013) – Cambridge University Press. Online ISBN: 9781139542289; DOI:
https://doi.org/10.1017/CBO9781139542289
SE in Europe
Closest to the global “SE’s champions” mostly composed of states in Africa, the closest are: Azerbaijan, which is ranked 14 and Ukraine 17 in the global list (with about 43% of GDP), followed by Moldova with the 25th rank and about 40% of GDP. Russia is on the 45th place with about 34 % of GDP, Cyprus – on the 55 place with 32% of GDP; in Turkey the SE takes 27% of GDP and Albania – 26%.
Among the EU member states, the worst in the SE are: Italy, Croatia and Romania (102-104 ranks) and all with about 23% of GDP; Spain holds 105 rank with 22% of GDP.
Bulgaria and Hungary (ranked 110 1md 113) are having SE at the level of 20%; among the Baltic States , the “leaders” in SE are Lithuania and Estonia (ranked 121 and 122) with about 18,5% of GDP, Poland and Latvia (ranked 127 and 129 in the world) with about 16,4 %; followed by Norway (with 15%) and Denmark with 14,7%; Finland (13%), Iceland -12,4% and Sweden with 11,7% of GDP.
Only Germany and the US (with the lowest ranks of 156 and 157) are having SE at the level of about 7 percent.
Source and citation from: https://www.theglobaleconomy.com/rankings/shadow_economy/
Our opinion
It seems that no country in the world has eradicated the SEs in any form or kind: the SE can be traced from almost all economic activities conducted outside the purview of government regulation and oversight; it presents a formidable challenge to policymakers and economists alike. While estimates vary, the size and scope of the shadow economy are significant in both developed and developing countries, exerting profound effects on economic stability, social equity and government revenue. Therefore, a complete understanding of the SE’s dynamics requires a multifaceted approach that considers its underlying causes, manifestations and consequences for all spheres of socio-economic activities both nationally and internationally.
Reference information: Nguyen C. (2024). Unveiling the shadow economy: understanding its impact, causes and policy implications. – Journal of Economics and Economic Education Research, 25(1), 1-3.
Some researchers note that that “black markets arise from regulatory constraints and high taxation, leading individuals to engage in illegal activities; this emphasizes the need for understanding the ways the markets can develop effective counter-strategies.
Reference to a set of articles on the issue (2024) in:
https://journal.gaee.org/index.php/gjae/article/view/18
The general opinion is that SE “focuses on productive economic activities that would normally be included in national accounts but that remain underground because of tax or regulatory burdens”. Although such legal activities would contribute to a country’s value added, they are not captured in national accounts because they are produced in illicit ways. Informal household economic activities such as do-it-yourself projects and neighborly help are typically excluded from analyses of the shadow economy.
Source: https://www.elibrary.imf.org/display/book/9781513575919/ch002.xml (2021).
Note. Generally, the most recent and official data on shadow economy in the EU(in percent of GDP) are about a decade’s old: the average for 2015 is based on 27 EU countries was 17.19 percent at that time. The highest value was in Cyprus: 32.2 percent and the lowest value was in Germany: 7.75 percent. Source: https://www.theglobaleconomy.com/rankings/shadow_economy/European-union/