Shadow Economies and State Disconnection: Myanmar's Policy Paradox

This paper examines how well-intentioned economic policies have contributed to the growth of the shadow economy in Myanmar. The shadow economy includes informal activities in trade, investment, and foreign exchange that operate outside effective regulation. Many of these practices lie in an ambiguous space that is neither fully legal nor entirely illegal. The study argues that policy interventions designed to reduce informality frequently produce the opposite outcome. Evidence from periods before and after the 2021 coup shows that unrealistic policies detached from market realities and administrative capacity alienate economic actors from formal institutions. These dynamics make informality a rational response to structural limitations. As informal responses deepen, the shadow economy becomes increasingly entrenched.