Informal Economy in Albania: Size and Consequences on Financial Deepening
Forthcoming in The International Journal of Science, Innovation and New Technology
International Conference Proceedings, ISTI-2012
8 Pages Posted: 10 May 2014 Last revised: 24 Jun 2014
Date Written: June 1, 2012
The main purpose of this paper is to assess empirically the size of the informal economy in Albania over the last two decades, and its consequences on the financial deepening of the country. We will present a brief review of the informal economy development in Albania, and assess its size employing three empirical approaches: national accounts discrepancies, electrical energy consumption, and simple currency ratio approach. Previous studies on this topic and our findings suggest that the informal sector still accounts for a significant proportion of output and employment in Albania. Operating informally makes it difficult to households and enterprises to prove their creditworthiness since they cannot provide reliable documentation on their financial situation thus holding back financial deepening. Digitalization of information sources can enable better statistical reporting and provide possibilities for cross checking, better measurement of the formal economy and subsequently assessments of the informal sector.
Keywords: Albania, informal economy, financial deepening, economic growth, digitalization
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