Shadow economy or as labelled Informal Economy in the North African countries of the MENA region commands, according to the local media, some 30 to 50% of their respective economies. It has historically been taken for a long time as the main cause responsible for economic backwardness of the under-developed countries of the world. These countries’ government in a bid to reduce its importance, were at pains trying to draw sizable segments out of the informal sphere of their economies and insert them into economies that are very often stiffened by red tape and / or lacking capital fluidity.
Meanwhile, advances in technology and its increasing coverage would possibly be working the other way around, meaning towards informalizing further all economies by facilitating amongst many things the easy transfer and exchange of money, etc.
This article of the WEF by Charlotte Edmond, Formative Content is explicit about this phenomenon as witnessed in certain countries. This however would obviously apply all over the world but at varying degrees.
This developed country’s shadow economy is worth one-fifth of its GDP
Three southern European countries dominate a list of selected industrialized countries with shadow economies.
Some countries have much larger shadow or unofficial economies than others. Greece’s shadow economy is worth over a fifth of its total output, and Italy’s isn’t far behind.
This chart, based on research by Germany’s Institute for Applied Economic Research (IAW) at the University of Tübingen, shows southern European countries dominating the top of a list of selected industrialized countries with shadow economies.
What is the shadow economy?
It is the total value of transactions by businesses and individuals that occurs “off the books”. In other words, work done for cash to avoid incurring tax and without following standard business practices.
This could be anything from paying a tradesman or a babysitter in undeclared cash to the illegal wildlife trade, counterfeiting and money laundering.
Untaxed and unrecorded economic activity boomed during the global financial crisis and continues to grow today.
The World Economic Forum’s Global Agenda Council on Illicit Trade 2012-2014 estimated the global shadow economy to be worth $650 billion. While it’s difficult to be sure of the amount of business that bypasses regulators, WEF research from 2015 forecast that the cost to the global economy of counterfeiting alone could reach $1.77 trillion over the course of that year.
A large shadow economy is a cause for concern for governments that miss out on tax revenues. However, it has also been argued that attempting to curb the shadow economy can limit economic growth and hamper innovation.
Have you read?
- What GDP revisions reveal about the shadow economy
- Q&A: Can governments drag the shadow economy into the light?