Abstract
Shadow economy is related to the issue of non-reporting and/or underreporting of market transactions by economic agents. The prevalence of shadow economy can have serious impact on economic growth as well as on income distribution in a country. Findings in the literature about the size of shadow economy in SEE countries reveal relatively high levels of shadow economy. Therefore, the main purpose of this paper is to assess the size of shadow economy in the South East European countries by some new estimates covering the period from 2003 to 2011. The paper also investigates the response of the shadow economy to financial crisis. The Multiple Indicators Multiple Causes (MIMIC) estimation procedure is used in order to estimate the size of the shadow economy. The econometric results obtained show that the average size of shadow economy of SEE countries is at about 33 % of the official GDP. The last 3 years show a slightly increasing trend in the magnitude of shadow economy in most of the countries compared to the previous period. This trend highlights the fact that the financial crisis has negative implications on the shadow economic activities.
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Notes
- 1.
See Gerxhani (2004) for differences between developed and developing countries with respect to the shadow economy. See also, Schneider et al. (2010) about their recent evidence that the shadow economy’s trend is decreasing in both developing and industrialized countries by 3 percentage points. However, this finding needs further corroboration to be generalized. See in the next section for a discussion of various concepts of shadow economy in comparison with other prevalent concepts.
- 2.
See Schneider et al. (2010).
- 3.
See more Gerxhani (1999) ‘The Informal Sector in Developed and Less Developed Countries: Literature Survay’ Tinbergen Institute Discussion Paper, page 3.
- 4.
For a comprehensive overview of each definition of these five categories see: Measuring the Non-Observed Economy – A Handbook, (2002). OECD.
- 5.
Tedds (2005), “The Underground economy in Canada”, MPRA, page 3.
- 6.
This sentence has been dedicated to countries such as: Albania, Bosnia & Herzegovina, FYROM, Republic of Kosovo, Montenegro, Serbia.
- 7.
See Transition Reports 2008.
- 8.
INSTAT is the state statistical office of Albania.
- 9.
This part draws heavily upon (SEE monitor 2006) Iceg Ec Corvinus.
- 10.
- 11.
For instance, according to Feige’s method, estimated size of the shadow economy of USA is 33 % of GDP for year 1979, and with Gutmann’s (1977) method is 13 % of GDP for the same year. See more for a critical analysis of the different macro methods: Ph. Barthelemy (1988) “The Macroeconomic Estimates of Hidden Economy: A Critical Analysis”.
- 12.
The data for some years and some variables are not available for the Republic of Kosovo, Montenegro and Serbia, for this reason they are excluded from the sample.
- 13.
The estimations for the base year 2005 for each country are considered those of Schneider et al. (2010).
- 14.
The countries: Bulgaria, Romania and Slovenia are member states of the European Union. Bulgaria and Romania are among countries with the highest shadow economy in the EU.
- 15.
See in the previous section.
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Sadiku, L., Berisha, N., Sadiku, M. (2015). Empirical Analysis of the Shadow Economy of the South East European Countries. In: Karasavvoglou, A., Ongan, S., Polychronidou, P. (eds) EU Crisis and the Role of the Periphery. Contributions to Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-10133-0_3
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