FT Alphaville " The growth of the shadow economy, charted When the economy is tanking the shadow economy benefits. That's the theory and a new study into the rise of the grey economy, from Ceyhun Elgin and Oguz Oztunali of Bogazici University and presented at VoxEU, seems to add weight to the argument. The author's put together a 161-country panel dataset over the period 1950 to 2009 (using the multiple indicators and multiple causes method) which attempts to estimate the size of the shadow economy in various regions. As said, the findings are estimates but they are still estimates which are well worth highlighting. They found (with our emphasis) that: For almost all country groups (except for the post-Socialist one), we observe a declining trend over time. However, the pace of the reduction seems to lose some momntum in the last decade. Somewhat more interestingly, we observe a spike staring in 2007. Considering the emergence of the global economic crisis, this could give further support for the hypothesis that the size of the shadow economy is countercyclical, as suggested by Roca et al (2001) and Elgin (2012). Many people saw such a reversal coming. As Professor Friedrich Schneider from the University of Linz in Austria told FT Alphaville back in March, the reversion back to an expanding shadow economy is obviously connected to the financial crisis: In the financial crisis, people have much less opportunities to earn money in the official economy. They can get either unemployment or have to work shorter, so they try to compensate their income loss through shadow economy activities. Anyway, here are Elgin and Oztunali's results, charted: Related links: The ascent of the shadow economy - FT Alphaville System D: The Shadow Economy is the Second Largest in the World - Freakanomics Rise of the Shadow Economy: Second Largest Economy in the World - Forbes This entry was posted by David Keohane on Thursday, May 10th, 2012 at 9:11 and is filed under People. Tagged with Shadow economy.