IMPACT OF THE SHADOW ECONOMY ON ECONOMIC GROWTH
Abstract
The shadow economy remains a persistent and complex phenomenon affecting both developing and developed countries. This study examines the impact of the shadow economy on economic growth by analyzing its theoretical foundations, determinants, and macroeconomic consequences. While informal economic activities may provide income opportunities and reduce short-term unemployment pressures, they simultaneously weaken fiscal capacity, reduce tax revenues, distort competition, and undermine institutional development. Using comparative analysis and macroeconomic indicators, the article evaluates both the positive and negative channels through which the shadow economy influences gross domestic product (GDP), investment climate, public finance stability, and long-term sustainable growth. The findings suggest that although the shadow economy may temporarily stimulate consumption and employment, its overall long-term effect on economic growth is predominantly negative due to reduced productivity, limited access to formal financial systems, and weakened governance structures. The study concludes with policy recommendations aimed at reducing the size of the shadow economy through institutional reforms, tax system optimization, digitalization, and improved regulatory frameworks.