IDEAS home Printed from https://ideas.repec.org/a/nea/journl/y2025i67p255-263.html

Does digitalization bring the economy out of the shadows?

Author

Listed:
  • Yurevich, M.

    (Primakov National Research Institute of World Economy and International Relations, Russian Academy of Sciences (IMEMO), Moscow, Russia)

Abstract

Digitalization has an ambiguous impact on the shadow economy: on the one hand, it helps reduce its scale by transforming business processes, increasing transparency, and enhancing control, while on the other hand, it creates new channels for evading regulation. Empirical studies confirm mainly a negative correlation between the level of digitalization and the size of the shadow economy, though the relationship may also be nonlinear. However, in most of the reviewed studies, indicators of digitalization were based on metrics of public access to ICT and, less frequently, - assessments of the intensity of electronic interaction between citizens and government bodies, while financial measures of economic digitalization were overlooked. Calculations on a sample of 42 countries for the period from 2000 to 2022 confirmed a Ï-shaped relation between the share of the ICT sector in total value added and the share of employed in the informal sector. Based on two-stage least squares (2SLS) model estimates, the labor market emerges as a transmission channel between the level of digitalization and the share of the shadow economy in GDP. Substantively, the modeling results suggest that excessive acceleration of digital transformation amid underdeveloped institutions can stimulate growth in informal activity.

Suggested Citation

  • Yurevich, M., 2025. "Does digitalization bring the economy out of the shadows?," Journal of the New Economic Association, New Economic Association, vol. 67(2), pages 255-263.
    • Handle: RePEc:nea:journl:y:2025:i:67:p:255-263
    DOI: 10.31737/22212264_2025_2_255-263
    as

    Download full text from publisher

    File URL: http://www.econorus.org/repec/journl/2025-67-255-263r.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.31737/22212264_2025_2_255-263?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Ceyhun Elgin & M. ayhan Köse & Franziska Ohnsorge & Shu Yu, 2021. "Understanding Informality Abstract:," Working Papers 2021/03, Bogazici University, Department of Economics.
    2. Kose, M. Ayhan & Elgin, Ceyhun & Ohnsorge, Franziska & Yu, Shu, 2021. "Understanding Informality," CEPR Discussion Papers 16497, Centre for Economic Policy Research.
    3. Canh Phuc Nguyen & Christophe Schinckus & Quang Binh Nguyen & Duyen Thuy Le Tran, 2024. "Digitalization and informal economy: a global evidence of internet usage," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 51(1), pages 1-37, March.
    4. Uyar, Ali & Nimer, Khalil & Kuzey, Cemil & Shahbaz, Muhammad & Schneider, Friedrich, 2021. "Can e-government initiatives alleviate tax evasion? The moderation effect of ICT," Technological Forecasting and Social Change, Elsevier, vol. 166(C).
    5. Rita Remeikienė & Ligita Gasparėnienė & Yilmaz Bayar & Romualdas Ginevičius & Ieva Marija Ragaišytė, 2022. "ICT development and shadow economy: Empirical evidence from the EU transition economies," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 35(1), pages 762-777, December.
    6. Ndoya, Hermann & Okere, Donald & Belomo, Marie laure & Atangana, Melissa, 2023. "Does ICTs decrease the spread of informal economy in Africa?," Telecommunications Policy, Elsevier, vol. 47(2).
    7. Rob Ackrill & Eghosa Igudia, 2024. "Analysing the informal economy: Data challenges, research design, and research transparency," Review of Development Economics, Wiley Blackwell, vol. 28(4), pages 1971-1993, November.
    8. Vincenzo Spiezia, 2012. "ICT investments and productivity: Measuring the contribution of ICTS to growth," OECD Journal: Economic Studies, OECD Publishing, vol. 2012(1), pages 199-211.
    9. Lv, Jiamin & Li, Shi & Zhu, Mengying & Huang, Wenli, 2024. "Can the digital economy development limit the size of the informal economy? A nonlinear analysis based on China's provincial panel data," Economic Analysis and Policy, Elsevier, vol. 83(C), pages 896-921.
    10. Sacchi Agnese & Santolini Raffaella & Schneider Friedrich, 2022. "On the effects of e-participation on shadow economy: a worldwide empirical analysis," German Economic Review, De Gruyter, vol. 23(3), pages 463-491, August.
    11. Emmanuel Umoru Haruna & Usman Alhassan, 2022. "Does digitalization limit the proliferation of the shadow economy in African countries? An in‐depth panel analysis," African Development Review, African Development Bank, vol. 34(S1), pages 34-62, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Anushka Verma & Arun Kumar Giri & Byomakesh Debata, 2025. "ICT Diffusion, Financial Instability, and Shadow Economy: Panel Evidence from SAARC Economies," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 16(3), pages 12595-12616, September.
    2. Lv, Jiamin & Li, Shi & Zhu, Mengying & Huang, Wenli, 2024. "Can the digital economy development limit the size of the informal economy? A nonlinear analysis based on China's provincial panel data," Economic Analysis and Policy, Elsevier, vol. 83(C), pages 896-921.
    3. Maiti, Dibyendu & Khari, Bhavna, 2025. "Digitalisation, e-Governance and the informal sector," Structural Change and Economic Dynamics, Elsevier, vol. 75(C), pages 451-463.
    4. Chen, Hailin & Xu, Changtuo & Zhan, Wang & Lin, Gaoyi & Schneider, Friedrich, 2025. "Like adding oil to the fire or pouring water on it? The effect of the digital economy on corporate tax avoidance: Evidence from China," Technological Forecasting and Social Change, Elsevier, vol. 212(C).
    5. Armand, Alex & Carneiro, Pedro & Tagliati, Federico & Xia, Yiming, 2026. "Can subsidized employment tackle long-term unemployment? Experimental evidence from North Macedonia," Journal of Development Economics, Elsevier, vol. 178(C).
    6. K K C Sineth Kannangara & Yanrui Wu, 2023. "Shadow Economy in Sri Lanka: A Review and New Estimates," Economics Discussion / Working Papers 23-04, The University of Western Australia, Department of Economics.
    7. Madeira, Carlos, 2026. "Identification of earnings dynamics using rotating samples over short periods: the case of Chile," World Development, Elsevier, vol. 199(C).
    8. Tillaguango, Brayan & Alvarado, Rafael & Ahmad, Munir & Rehman, Abdul & Işık, Cem & Chamba, José, 2025. "Impact of agricultural employment, gross domestic product, informal economy, institutional quality on forest cover in Ecuador," Forest Policy and Economics, Elsevier, vol. 174(C).
    9. Benshaul-Tolonen, Anja & Fernandez Musso, Paula, 2025. "Mine suppliers: Understanding backward linkages in Kitwe, Zambia," Resources Policy, Elsevier, vol. 108(C).
    10. Nettuno, Laura, 2024. "Gender identity, labor market outcomes, and socioeconomic status: Evidence from Chile," Labour Economics, Elsevier, vol. 87(C).
    11. Philippe Adair & Vladimir Hlasny, 2022. "Labour Market Segmentation and Formalising Informality in MENA Countries," Erudite Working Paper 2022-07, Erudite.
    12. Prianto Budi Saptono & Gustofan Mahmud, 2022. "Institutional environment and tax performance: empirical evidence from developing economies," Public Sector Economics, Institute of Public Finance, vol. 46(2), pages 207-237.
    13. BRICI Iulia & ACHIM Monica Violeta, 2023. "Does The Digitalization Of Public Services Influence Economic And Financial Crime?," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 18(2), pages 67-85, August.
    14. Fayssal Ayad, 2025. "The Jedi path to formal economy: untangling the causal effects of development on informality in Africa," Empirical Economics, Springer, vol. 69(6), pages 3251-3291, December.
    15. Emmanuel Umoru Haruna & Usman Alhassan, 2022. "Does digitalization limit the proliferation of the shadow economy in African countries? An in‐depth panel analysis," African Development Review, African Development Bank, vol. 34(S1), pages 34-62, July.
    16. Canh Phuc Nguyen & Nguyen Doan & Binh Quang Nguyen & Huong Doan, 2026. "Regional authority and the shadow economy," International Economics and Economic Policy, Springer, vol. 23(1), pages 1-66, February.
    17. Fernandes, Alexandra, 2025. "The non-observed economy in the national accounts: New evidence for EU and EFTA Member States," Economic Analysis and Policy, Elsevier, vol. 86(C), pages 137-164.
    18. Wiedemann, Verena Christina & Kirui, Benard K. & Khandelwal, Vatsal & Chacha, Peter W., 2024. "Spatial Inequality and Informality in Kenya’s Firm Network," Policy Research Working Paper Series 10932, The World Bank.
    19. Faisal, Faisal & Ramakrishnan, Suresh & Rahman, Sami Ur & Ali, Adnan & Sulimany, Hamid Ghazi H, 2024. "Asymmetric nexus between shadow economy and financial instability: Does institutional quality matter?," The Quarterly Review of Economics and Finance, Elsevier, vol. 98(C).
    20. Bojan Adrian & Achim Monica Violeta, 2025. "Does Information and Communication Technology Influence the Shadow Economy? A Panel Data Analysis for EU Countries," Proceedings of the International Conference on Business Excellence, Sciendo, vol. 19(1), pages 2843-2862.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nea:journl:y:2025:i:67:p:255-263. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Alexey Tcharykov (email available below). General contact details of provider: https://edirc.repec.org/data/nearuea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.