Estimating the Size and Development of the Informal Economy in the Balkan Peninsula Countries Using the SEM-Approach and Assessing the Impact of COVID-19

We investigate the size and trends of the informal economy (IE) in ten Balkan nations from 1996-2021 using the MIMIC model. Our findings reveal a consistent decline in the IE in our sample, albeit it remains substantial, exceeding 29% (of GDP) in 2021. We also explore the impact of the COVID-19 pandemic on the IE of the region. Our results indicate a significant increase in the IE during this period. Our research emphasises structural characteristics and macroeconomic trends as essential drivers of the IE, allowing us to provide valuable insights into the dynamics of the IE. Our research addresses the measurement gap in the post-reform IE of the region, providing a robust estimation of the IE's extent. Ultimately, our study provides a solid framework for policymakers and researchers seeking to understand and address IE concerns in the Balkan region and beyond and their implications for economic development.