Unveiling the shadows: tracing the informal economy in the Balkans from 1996 to 2021

Abstract

Using the MIMIC model, we analyse the informal economy (IE) in Balkan countries from 1996 to 2021. Results show a decline in the IE, which started at approximately 35% in 1996 but remained relatively high at over 29% of GDP by 2021. This was driven by regulatory burden, financial freedom, urbanisation, macroeconomic factors, and government size. The COVID-19 pandemic caused a rise in informal activity in 2020, increasing by 1–3% points compared to 2019. This study highlights the role of policy-driven and macroeconomic factors in shaping the IE, addressing gaps in understanding post-reform socio-economic developments in the region.