How Big Is the World Black Market?

Economists Ceyhun Elgin and Oguz Oztunali are researching the size of shadow economies, or black markets, around the world. Using a dataset with 7,395 observations for 161 countries from 1950 to 2009, they’re looking into how the size of black markets differs in rich and poor countries.

They estimate that shadow economies account for 22.67 percent of world GDP, with a generally downward trend that seems to have been interrupted by the global recession:

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 momentum 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).

They also found that rich countries have smaller shadow economies:

In Figure 2, we group countries with respect to GDP per-capita and then report the average GDP-weighted shadow economy size in each group. Here, we divide the countries into five categories – poorest, second, third, fourth and the richest 20%. Not surprisingly, richer countries tend to have a smaller shadow economy; however … this relationship is not exactly linear, especially in a cross-country sense.