The shadow sector, or informal economy, includes everything from illicit sidewalk sales of counterfeit handbags to large corporations that evade taxes and ignore regulations. It makes up a substantial portion of the global economy. The OECD estimated in 2009 that 1.8 billion workers participated in this sector, generating over $10 trillion in goods and services. Indeed, in many countries the number of people employed informally exceeds the number in the formal workplace.
What 45 Years of Data Tells Us About Globalization’s Influence on the Shadow Economy
How openness to trade and participation in IMF programs influence the informal economy.
May 08, 2018
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Summary.
The shadow sector, or informal economy, includes everything from illicit sidewalk sales of counterfeit handbags to large corporations that that evade taxes and ignore regulations. It makes up a substantial portion of the global economy: One estimate suggests that 1.8 billion workers participate in this sector, generating over $10 trillion in goods and services. Indeed, in many countries the number of people employed informally exceeds the number in the formal workplace. How does globalization affect this sector? A team of researchers examined how two aspects of a country’s participation in the global economic order — being open to foreign trade and investment and participating in the International Monetary Fund’s structural adjustment programs — affect growth of the informal economy. Looking at 142 countries over 45 years, they found that openness to trade shrank the formal economy, while participation in IMF programs seemed to grow it.