Measuring Underground (Unobserved, Non-Observed, Unrecorded) Economies in Transition Countries: Can We Trust GDP?
Abstract This paper compiles alternative estimates of underground economies in twenty five transition countries during the transition decade and finds a disturbing lack of convergence between them, calling into question the reliability of GDP figures (which in varying degrees now include non-transparent imputations for the “non-observed economy”) as well as the macro model estimates of the unrecorded economy. A corollary of this finding is that substantive results from many studies examining the consequences of the radical transition from planned to market economies must be viewed with considerable skepticism. Underground (unobserved, non-observed, unrecorded) economic activities play a major role in transition economies. Evaluations of the success and failure of the transition experience should be based on estimates of total economic activity (TEA) namely, recorded plus unrecorded economic activity. We examine the conceptual and empirical relationships between new National Income and Product Accounts (NIPA) methods for obtaining “exhaustive” measures of total economic activity and the two most popular macro-model approaches (electric consumption and currency ratio models) for estimating the size and growth of the unrecorded sector. Our updated empirical results detailing the size and trajectory of unrecorded activities obtained from different estimation methods reveal a disturbing lack of convergence. Until these important differences are resolved, investigations of the relationship between economic reforms and economic outcomes during the transition decade must be viewed with considerable caution. Given the shortcomings of conventional macro model estimates of the underground economy and the lack of transparency and consistency of NOE estimates, it is high time that the profession acknowledges how little we really know about underground economies and their causes and consequences.
|Date of creation:||Nov 2007|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- World Bank, 2002. "Transition, The First Ten Years : Analysis and Lessons for Eastern Europe and the Former Soviet Union," World Bank Publications, The World Bank, number 14042.
- Simon Johnson & Daniel Kaufman & Andrei Shleifer, 1997. "The Unofficial Economy in Transition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 159-240.
- Edgar L. Feige, 1986.
"A Re-Examination of the "Underground Economy" in the United States: A Comment on Tanzi,"
IMF Staff Papers,
Palgrave Macmillan, vol. 33(4), pages 768-781, December.
- Edgar L. Feige, 2005. "A Re-Examination of the 'Underground Economy' in the United States; A Comment on Tanzi," Macroeconomics 0501021, EconWPA.
- Edgar L. Feige & Ivica Urban, 2003. "Estimating the Size and Growth of Unrecorded Economic Activity in Transition Countries: A Re-evaluation of Electric Consumption Method Estimates and their Implications," Macroeconomics 0311010, EconWPA.
- Michael Alexeev & William Pyle, 2001.
"A Note on Measuring the Unofficial Economy in the Former Soviet Republics,"
William Davidson Institute Working Papers Series
436, William Davidson Institute at the University of Michigan.
- Michael Alexeev & William Pyle, 2002. "A Note on Measuring the Unofficial Economy in the Former Soviet Republics," Middlebury College Working Paper Series 0230, Middlebury College, Department of Economics.
- Helmut Stix, 2001. "Survey Results about Foreign Currency Holdings in Five Central and Eastern European Countries," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 2(3), pages 41-48, February.
- Ratna Sahay & Jeronimo Zettelmeyer & Eduardo Borensztein & Andrew Berg, 1999. "The Evolution of Output in Transition Economies; Explaining the Differences," IMF Working Papers 99/73, International Monetary Fund.
- Brian M. Doyle, 2000. ""Here, dollars, dollars ..."estimating currency demand and worldwide currency substitution," International Finance Discussion Papers 657, Board of Governors of the Federal Reserve System (U.S.).
- Feige,Edgar L. (ed.), 1989. "The Underground Economies," Cambridge Books, Cambridge University Press, number 9780521262309, May.
- Seitz, Franz, 1995. "The circulation of Deutsche Mark abroad," Discussion Paper Series 1: Economic Studies 1995,01e, Deutsche Bundesbank.
- Feige, Edgar L., 1990.
"Defining and estimating underground and informal economies: The new institutional economics approach,"
Elsevier, vol. 18(7), pages 989-1002, July.
- Edgar L. Feige, 2003. "Defining And Estimating Underground And Informal Economies: The New Institional Economics Approach," Development and Comp Systems 0312003, EconWPA.
- Edgar L. Feige, 2003.
"The Dynamics of Currency Substitution, Asset Substitution and De facto Dollarization and Euroization in Transition Countrieses,"
- Feige,E.L., 2003. "The dynamics of currency substitution, asset substitution and de facto dollarization and euroization in transition countries," Working papers 3, Wisconsin Madison - Social Systems.
- Edgar L. Feige, 2003. "The Dynamics of Currency Substitution, Asset Substitution and De facto Dollarization and Euroization in Transition Countries," Macroeconomics 0302005, EconWPA.
- Nauro F. Campos & Abrizio Coricelli, 2002.
"Growth in Transition: What We Know, What We Don't, and What We Should,"
Journal of Economic Literature,
American Economic Association, vol. 40(3), pages 793-836, September.
- Campos, Nauro F & Coricelli, Fabrizio, 2002. "Growth in Transition: What we Know, What we Don't and What we Should," CEPR Discussion Papers 3246, C.E.P.R. Discussion Papers.
- Nauro F. Campos & Fabrizio Coricelli, 2002. "Growth in Transition: What We Know, What We Don't, and What We Should," William Davidson Institute Working Papers Series 470, William Davidson Institute at the University of Michigan.
- Feige, Edgar L, 1994. "The Underground Economy and the Currency Enigma," Public Finance = Finances publiques, , vol. 49(Supplemen), pages 119-136.
- Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-392, May.
- Mária Lackó, 2000. "Hidden Economy - an Unknown Quantity? Comparative Analysis of Hidden Economies in Transition Countries, 1989-95," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(1), pages 117-149, March.
- Trevor Breusch, 2006. "Size, Causes and Consequences of the Underground Economy: An International Perspective Edited by Christopher Bajada and Friedrich Schneider," The Economic Record, The Economic Society of Australia, vol. 82(259), pages 492-494, December.
- Oleh Havrylyshyn, 2001. "Recovery and Growth in Transition: A Decade of Evidence," IMF Staff Papers, Palgrave Macmillan, vol. 48(4), pages 1-4.
- Richard D. Porter & Ruth Judson, 1996. "The location of U.S. currency: how much is abroad?," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 883-903.
- Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June.
- Gerxhani, Klarita, 2004. "Tax evasion in transition: Outcome of an institutional clash? Testing Feige's conjecture in Albania," European Economic Review, Elsevier, vol. 48(4), pages 729-745, August.
- repec:hrv:faseco:30728045 is not listed on IDEAS
- Manik L. Shrestha & Adriaan M. Bloem, 2000. "Comprehensive Measures of GDP and the Unrecorded Economy," IMF Working Papers 00/204, International Monetary Fund.
- Michael Alexeev & William Pyle, 2003. "A note on measuring the unofficial economy in the former Soviet Republics -super-1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(1), pages 153-175, March.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:7345. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.