Entrepreneurship and the Shadow Economy

Entrepreneurship and the Shadow Economy

Edited by Arnis Sauka, Friedrich Schneider and Colin C. Williams

The shadow economy has become the focus of policy makers around the world. This timely book explores the relationship between entrepreneurship and the shadow economy by reviewing how to measure, explain and tackle this hidden enterprise culture. The editors bring together leading authorities in the field to examine existing methods to measure the shadow economy, explore entrepreneurship and shadow economy practices in various contexts, and provide policy suggestions for decreasing the shadow economy. It concludes by encouraging further research in this ever-growing field.

Chapter 8: The informal economy in the Caucasus and Central Asia: size and determinants

Yasser Abdih and Leandro Medina

Subjects: business and management, entrepreneurship, economics and finance, economics of entrepreneurship


This study estimates the size of the informal economy, and the relative contribution of each underlying factor, for the Caucasus and Central Asia countries in 2008. Using a Multiple Indicator–Multiple Cause model, we find that a burdensome tax system, rigid labour market, low institutional quality, and excessive regulation in financial and product markets are determinant factors in explaining the size of the informal economy, which ranges from 26 per cent of GDP in Kyrgyz Republic to around 35 per cent of GDP in Armenia. Furthermore, the results show that higher levels of informality increase the levels of self-employment and the percentage of currency held outside the banking system.

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