Unobserved Economy: Threats to Growth in Crisis and Classification of Valuation Methods

Abstract

Purpose: The purpose of the work is to establish the relationship between the cycles of economic development and the scale of the shadow sector of the economy and to clarify the classification of its methods of definition. Design/methodology/approach: The authors, using a statistical methodology, formulate the hypothesis that there is a connection between the dynamics of GDP, which characterizes the level of economic development, and the change in the volume of the shadow economy of countries, and also specify the classification of methods for determining the volume of the unobserved economy. Findings: The work proved that there is an inverse correlation between the dynamics of GDP, which characterizes the level of economic development, and the change in the volume of the shadow economy of countries. Thus, the hypothesis is verified that during times of crisis the scale of the shadow sector is increasing, which is especially relevant in the current conditions of the development of the world economy. A refined classification scheme for methods for estimating the scale of the unobserved economy has been proposed. Originality/value: The updated classification scheme of methods for assessing the scale of the unobserved economy proposed by the authors will allow more clearly structuring the entire variety of approaches that currently exist. The established inverse relationship between the dynamics of GDP and the change in the volume of the shadow economy of countries can be used as an element in adjusting the existing ones and developing new methods for predicting the scale of the shadow sector.