Measuring the Global Shadow Economy

Measuring the Global Shadow Economy

The Prevalence of Informal Work and Labour

Colin C. Williams and Friedrich Schneider

This book brings together two leading researchers in the field to provide a comprehensive overview of the shadow economy from a global perspective. Reviewing the advantages and disadvantages of different ways of measuring the informal sector, the authors evaluate its size and key determinants across the world. Williams and Schneider clearly establish the persistence and prevalence of the shadow economy, analysing the narrowness of existing policy approaches and explaining how these fail to address the key factors for its existence and may even exacerbate the problem.

Chapter 4: The shadow economy in developing and transition economies

Colin C. Williams and Friedrich Schneider

Subjects: economics and finance, labour economics, public finance, social policy and sociology, labour policy


For the casual observer, what appears to be instantly apparent is that the shadow economy is not evenly distributed across the globe. For example, it is obvious to anybody from a developed nation visiting some developing or transition economies that the shadow economy appears to be more prevalent than in their home nation. It is the case, however, that developing and transition economies do not all have shadow economies of the same magnitude. There are significant variations in the size of the shadow economy not only across different global regions but also across different developing countries within each region. The aim of this chapter is to begin to chart these variations in the magnitude of the shadow economy across the developing and transition economies. To do this, we here employ the most commonly used of all indirect measurement methods, namely the MIMIC method. Having outlined in some detail in Chapter 2 how this method derives its estimates, this chapter reports the findings in relation to developing and transition economies. First, therefore, this chapter charts the variations in the size of the shadow economy across global regions so as to show the broad variations across the world in the prevalence of the shadow economy. Having identified these global regional variations, the second section of this chapter then turns its attention to outlining the variations in the size of the shadow economy between countries.

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