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Does digitalization bring the economy out of the shadows?

Author

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  • 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
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    References listed on IDEAS

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    Keywords

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    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

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