The informal sector or informal economy is seen to parallel the formal economy and it effects for all aspects of human society and economy.
Although the informal economy in developing countries provides opportunities for income earning for those that have no other means to survive, its can have numerous negative effects on employees, companies and society and discourages participation in expansion of the formal economy.
Despite its economic importance, knowledge is extremely limited regarding the grey economy in tbe developing countries. It remains largely unrecognized by researchers, is neglected by politicians, and is even negatively perceived as it is meant to disappear with development.
Hi
the following articles can be useful
Nenovski, T. (2012). Macroeconomic aspects of the grey economy-the case of Macedonia.
Goev, V., & Boshnakov, V. (2015). Grey economy and perspectives of bulgarian business development in the EU accession period. Ekonomika, 85, 29-39.
Fleming, M. H., Roman, J., & Farrell, G. (2000). The shadow economy. Journal of International Affairs, 387-409.
Bosanquet, N., & Propper, C. (1991). Charting the grey economy in the 1990s. Policy & Politics, 19(4), 269-282.
Feige, E. L. (1990). Defining and estimating underground and informal economies: The new institutional economics approach. World development, 18(7), 989-1002.
Thanks.... What do you think about the causes and consequences of Grey economy ?... For example, unlike Austria and Switzerland, where the size of the shadow economy is moving between 7% and 8% of the official GDP of these countries, this dimension is in Poland of operations reached the level of 24% of domestic GDP. Also, Medina and Schneider (2017) found in their research for 158 countries between 1991 and 2015 the lowest size of the shadow economy in East Asian countries ( 16.77% ) followed by OECD countries ( 18.7%) while Latin American and sub-Saharan African countries recorded the highest value of Grey economy above 35% of official GDP.
see The Curse of Cash, a great book by K. Rogoff, the well-known Harvard economist.
Dear Dr. Ganic,
Interesting question, especially for whom live in underdeveloped countries, like me (Brazil).
Without consulting any good book or article before, I´d say that:
a) underdeveloped countries normally have very high taxes and corruption, bad politicians, and bad policies. It´s not exactly a "good incentive" to an informal to become formal;
b) human capital formation, even when are declared by the government - since it expends much - are not really "being formed" because people have no clue of how to develop yourselves;
c) so much is expended in bad social programs that does not create a real welfare, really does not open possibilities to a socioeconomic evolution, just keep people voting on the "chosen ones";
d) ... the list is big... But it´s just a start.
All my best wishes to you and family in 2018.
Prof. Hess
Dear Prof Hess,
I agree with you and share my humble opinion with many of your points. With my point of you the primary reason for rise of informal economy in many developing countries is a very poor quality of government institutions and its weaknesses in terms of the enforcement of law.
Also I wish you and your family a Happy New Year with the hope that you will have many blessings and personal success in the year to come.
Best ,
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